<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COMBICHEM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 8731 33-0617379
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
9050 CAMINO SANTA FE, SAN DIEGO, CALIFORNIA 92121
(619) 530-0484
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DR. VICENTE ANIDO, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
9050 CAMINO SANTA FE
SAN DIEGO, CALIFORNIA 92121
(619) 530-0484
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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FAYE H. RUSSELL, ESQ. FREDERICK T. MUTO, ESQ.
THOMAS E. HORNISH, ESQ. ERIC J. LOUMEAU, ESQ.
LANCE S. KURATA, ESQ. CHRISTOPHER W. KRUEGER, ESQ.
BROBECK, PHLEGER & HARRISON LLP COOLEY GODWARD LLP
550 WEST "C" STREET, SUITE 1300 4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CALIFORNIA 92101 SAN DIEGO, CA 92121
(619) 234-1966 (619) 550-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
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Common stock, par value $0.001
per share................... 2,587,500 Shares $13.00 $ 33,637,500 $ 10,194
===============================================================================================================
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(1) Includes 337,500 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee.
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1997
LOGO
2,250,000 SHARES
COMMON STOCK
All of the 2,250,000 shares of Common Stock offered hereby are being sold
by CombiChem, Inc. ("CombiChem" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for information relating to the method of
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"CCHM."
--------------------------------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
--------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------
Per Share................................. $ $ $
Total(3).................................. $ $ $
================================================================================================
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $700,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 337,500 shares of Common Stock, solely to cover
over-allotments if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.
----------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco, California
on or about , 1997.
BANCAMERICA ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
UBS SECURITIES
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
[DEPICTIONS OF COMBICHEM'S DISCOVERY PROCESS]
CombiChem's computational drug discovery process combines proprietary
software and rapid laboratory synthesis, with the promise of converging quickly
and reliably on active lead candidates. By analyzing the data resulting from
either prior information or the biological screening of compounds, the computer
constructs software-based models, called hypotheses, that discriminate between
the active and inactive compounds. The computer then uses these hypotheses to
search the Company's proprietary Virtual Library to select a more focused
collection of compounds (or library) for synthesis. CombiChem's chemists
synthesize these compounds in the laboratory with the goal of generating lead
candidates and, eventually, drug development candidates.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
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PAGE
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Summary................................................................................ 4
Risk Factors........................................................................... 6
Use of Proceeds........................................................................ 15
Dividend Policy........................................................................ 15
Capitalization......................................................................... 16
Dilution............................................................................... 17
Selected Financial Data................................................................ 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 19
Business............................................................................... 23
Management............................................................................. 39
Certain Transactions................................................................... 52
Principal Stockholders................................................................. 54
Description of Capital Stock........................................................... 56
Shares Eligible for Future Sale........................................................ 59
Underwriting........................................................................... 61
Legal Matters.......................................................................... 62
Experts................................................................................ 62
Additional Information................................................................. 63
Index to Financial Statements.......................................................... F-1
</TABLE>
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CombiChem was incorporated in California in May 1994 and subsequently
reincorporated in Delaware in
October 1997. The Company's executive offices are located at 9050 Camino Santa
Fe, San Diego, California 92121, and its telephone number is (619) 530-0484.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited interim financial
information for each of the first three fiscal quarters of each fiscal year of
the Company.
The Company has filed for trademark protection for the following: Discovery
Engine(TM), Universal Informer Library(TM) and Cascader(TM). All other
trademarks or service marks appearing in this Prospectus are the property of
their respective holders.
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<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus may contain
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
CombiChem, Inc. is a computational drug discovery company that is applying
its proprietary design technology and rapid synthesis capabilities to accelerate
the discovery process for new drugs. The Company believes its approach offers
pharmaceutical and biotechnology companies the opportunity to conduct their drug
discovery efforts in a more productive and cost-effective manner. Using its
proprietary Discovery Engine(TM) process, the Company focuses on the generation,
evolution and optimization of potential new lead candidates for its
collaborative partners, who will then develop, manufacture, market and sell any
resulting drugs. CombiChem believes that its process is widely applicable to a
variety of disease targets and therapeutic indications. To date, the Company has
established collaborative agreements with Teijin Limited ("Teijin"), Roche
Bioscience, a division of Syntex (U.S.A.) Inc. ("Roche Bioscience"), Sumitomo
Pharmaceuticals Co., Ltd. ("Sumitomo"), ImClone Systems Incorporated ("ImClone")
and Athena Neurosciences, Inc., a wholly owned subsidiary of Elan Corporation,
plc ("Elan/Athena"). In addition, the Company intends to use its approach on
internal programs to discover new lead candidates and then to outlicense them to
third parties, retaining a larger economic interest.
The Company's proprietary Discovery Engine is a convergent, iterative
process for drug discovery based on libraries (collections of compounds)
designed for information rather than merely diversity. The design of such
libraries requires the use of various computational and combinatorial chemistry
technologies to select molecules that collectively probe the biological target
in a systematic way to determine the chemical characteristics required for
binding to such target. By identifying features that discriminate between active
and inactive compounds, the computer constructs predictive models, called
hypotheses, and then uses those models to select a more focused library of
compounds. The computer selects compounds from the Company's proprietary Virtual
Library, a computational representation of more than 500 billion drug-like
molecules chosen for ease of laboratory synthesis. CombiChem believes that, by
repeating this process of selecting, synthesizing and screening informative
compounds and analyzing the resulting data, the Discovery Engine quickly
converges on the most predictive hypothesis. This hypothesis describes the
characteristics a compound must possess to be active against the target and,
thus, is used to select a variety of potent lead candidates.
CombiChem is applying its drug discovery approach to three important types
of programs: (i) lead generation, where the goal is to find lead candidates
against new biological targets; (ii) lead evolution, where the goal is to
develop alternative structural series with the same biological activity profile;
and (iii) lead optimization, where the goal is to modify a specific drug
template to improve its biological activity. For novel targets where little or
no information is available as well as those targets for which no suitable leads
have been identified, the Company initiates the Discovery Engine process by
making available for screening its Universal Informer Library(TM), which
consists of a computer-designed, proprietary collection of approximately 10,000
physical compounds.
CombiChem believes that its Discovery Engine has the following advantages:
(i) generating lead candidates from multiple structural series that exhibit the
same biological activity; (ii) generating lead structures against a wide range
of targets including those for which little or no information is available;
(iii) achieving rapid generation, evolution and optimization of lead candidates;
and (iv) reducing synthesis and screening costs. The Company's design technology
facilitates the use of small, informative libraries. The efficiency provided by
the use of such informative libraries is expected to shorten the time required
for the identification of lead candidates to less than two years.
The Company's objective is to be the industry leader in the generation,
evolution and optimization of novel lead candidates. The Company intends to
utilize its scientific and technology assets in the discovery process through a
mix of collaborative and internal programs by applying the following business
strategies: (i) to establish multiple collaborations with large pharmaceutical
and biotechnology companies focused on biological targets chosen by the
collaborators; (ii) to partner with companies to apply discovery technologies to
jointly agreed-upon biological targets; (iii) to conduct internal discovery
efforts aimed at selected biological targets, retaining a larger economic
interest in the subsequently outlicensed lead candidates; (iv) to expand
collaborative opportunities in alternative industries such as the agrochemical
field; and (v) to maintain technology leadership in both software development
and rapid synthesis capabilities.
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THE OFFERING
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Common Stock Offered by the Company........... 2,250,000 shares
Common Stock Outstanding after the Offering... 13,168,505 shares(1)
Use of Proceeds............................... To fund research and development, expansion of
laboratory and office facilities, working capital and
general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol........ CCHM
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
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PERIOD FROM
MAY 23, 1994
(INCEPTION) YEAR ENDED NINE MONTHS ENDED
TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- -----------------------
1994 1995 1996 1996 1997
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STATEMENT OF OPERATIONS DATA:
Total revenue..................... $ -- $ 50 $ 2,967 $ 1,070 $ 4,599
Total operating expenses.......... (711) (6,763) (8,085) (5,519) (8,341)
------------- ------- ------- ----------- -------
Loss from operations.............. (711) (6,713) (5,118) (4,449) (3,742)
------------- ------- ------- ----------- -------
Net loss.......................... $(706) $(6,675) $(5,118) $(4,461) $(3,669)
========== ======= ======= ========= =======
Pro forma net loss per share(2)... $ (0.66) $ (0.45)
======= =======
Shares used in computing pro forma
net loss per share(2).......... 7,797 8,192
</TABLE>
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<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(3) ADJUSTED(3)(4)
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BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.... $ 8,402 $ 20,235 $ 44,645
Working capital...................................... 5,288 16,121 40,531
Total assets......................................... 13,363 25,196 49,606
Long-term obligations, less current portion.......... 2,377 2,377 2,377
Redeemable convertible preferred stock............... 23,130 -- --
Accumulated deficit.................................. (16,168) (12,835) (12,835)
Total stockholders' equity (deficit)................. (15,852) 18,111 42,521
</TABLE>
- ---------------
(1) Based on the number of shares outstanding as of September 30, 1997.
Includes: (i) 7,754,933 shares of Common Stock to be issued upon conversion
of redeemable convertible preferred stock, par value $0.001 per share (the
"Preferred Stock"), of the Company; (ii) an aggregate of 1,250,000 shares of
Common Stock issued to ImClone and Elan/Athena in October 1997; and (iii)
901,658 shares of Common Stock which are currently subject to repurchase by
the Company. Excludes: (i) 441,696 shares of Common Stock issuable upon the
exercise of stock options outstanding as of September 30, 1997, with a
weighted average exercise price of $2.81 per share, all of which are
exercisable and 26,177 of which are vested; and (ii) 139,478 shares of
Common Stock issuable upon the exercise of outstanding warrants, with a
weighted average exercise price of $2.27 per share. See "Capitalization."
(2) Computed on the basis described for pro forma net loss per share in Note 1
of Notes to Financial Statements.
(3) Gives effect to (i) the conversion of the Preferred Stock into Common Stock
effective upon the closing of this offering; and (ii) the receipt of
up-front payments and the sale of an aggregate of 1,250,000 shares of Common
Stock to ImClone and Elan/Athena in October 1997.
(4) Adjusted to reflect the sale of 2,250,000 shares of Common Stock offered
hereby, assuming a public offering price of $12.00 per share (the mid-point
of the range set forth on the front cover) less estimated underwriting
discounts and commissions and other expenses of this offering. See "Use of
Proceeds."
Except as otherwise indicated herein, all information contained in this
Prospectus (i) gives effect to a one-for-four reverse split of the Common Stock,
(ii) reflects the conversion of all outstanding shares of Preferred Stock into
an aggregate of 7,754,933 shares of Common Stock, effective upon the closing of
this offering, and (iii) assumes no exercise of the Underwriters' over-allotment
option.
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. The
Prospectus may contain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus.
NEW AND UNCERTAIN TECHNOLOGY AND BUSINESS
The Company's Discovery Engine process is novel and has not yet been shown
to be successful in the discovery of lead candidates that have been subsequently
developed into commercialized drugs. Furthermore, the Company's drug discovery
efforts are focused on some targets the functions of which are not yet known.
Development of new pharmaceutical products is highly uncertain, and no assurance
can be given that the Company's drug discovery process will result in lead
candidates that will be safe or efficacious or commercially successful as
products. Failure to validate the Company's technology through the successful
discovery of lead candidates would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's strategy, which is unproven, is to use its proprietary design
technology for the purpose of rapidly identifying, optimizing and obtaining
proprietary rights to as many lead candidates and development candidates as
possible. The Company's ability to achieve profitability in the near term
depends entirely on its ability to enter into additional collaborative
agreements with third parties and to maintain the agreements it currently has in
place. The pricing and nature of the Company's collaborative relationships is
such that there may only be a limited number of pharmaceutical, biotechnology
and agrochemical companies that will be its potential customers. The Company's
ability to succeed is also dependent upon the acceptance by potential customers
of its Discovery Engine process as an effective tool in new drug discovery.
Historically, pharmaceutical, biotechnology and agrochemical companies have
conducted lead candidate identification and optimization within their own
research departments, due to the highly proprietary nature of the activities
being conducted, the central importance of these activities to their drug
discovery and development efforts and the desire to obtain maximum patent and
other proprietary protection on the results of their internal programs. In order
to achieve its business objectives, the Company must convince these companies
that its technology and capabilities justify the outsourcing of their programs
to the Company. There can be no assurance that the Company will be able to
attract any future customers on acceptable terms for its products and services
or develop a sustainable, profitable business. Failure to do so will have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business."
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company has had a limited operating history. For the period from May
23, 1994 (inception) to December 31, 1994, and for the years ended December 31,
1995 and 1996, and the nine months ended September 30, 1997, the Company had net
losses of approximately $0.7 million, $6.7 million, $5.1 million and $3.7
million, respectively. As of September 30, 1997, the Company had an accumulated
deficit of approximately $16.2 million. The Company's expansion of its
operations and enhancements to its Discovery Engine and related drug discovery
technology will result in significant expenses over the next several years that
may not be offset by significant revenue. The Company's ability to achieve
profitability in the near term depends entirely on its ability to enter into
additional collaborative agreements with third parties and to maintain the
agreements it currently has in place. To date, substantially all revenue
received by the Company has been from upfront fees and research and development
funding paid pursuant to existing collaborative agreements with third parties.
The Company has not yet received any revenue from the achievement of milestones
or license fees from the discovery, development or sale of a commercial drug by
a customer, and no such revenue is expected for at least several years, if at
all. An element of the Company's commercialization strategy is the potential
development and licensing to others of lead compounds or drug development
candidates identified by the Company through its internal programs, at its own
expense, for potential
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pharmaceutical development. To date, no such license has been entered into, and
there can be no assurance that any such license will be entered into on
acceptable terms in the future, if at all. The Company is unable to predict
when, or if, it will become profitable. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON COLLABORATORS
The Company's strategy depends upon the formation of multiple collaborative
arrangements with third parties on a regular basis. To date, the Company has
entered into five such arrangements, and substantially all of its revenue has
been from its collaborative arrangements. There can be no assurance that the
Company will be able to continue to establish additional collaborative
arrangements, that any such arrangements will be on terms favorable to the
Company, or that current or any future collaborative arrangements will
ultimately be successful. Failure to enter into additional collaborative
agreements on favorable terms would have a material adverse effect on the
Company's business, financial condition and results of operations. Further,
CombiChem's receipt of revenue from collaborative arrangements is affected by
the timing of efforts expended by the Company and its collaborators and the
timing of lead compound identification by the Company. The Company's products
and services will only result in commercialized pharmaceutical products
generating milestone payments and royalties upon the successful outcome of
significant preclinical and clinical development, the procurement of requisite
regulatory approvals, the establishment of manufacturing, sales and marketing
capabilities and the achievement of successful marketing. The Company does not
currently intend to perform any of these activities. Therefore, the Company will
be dependent upon the expertise and dedication of sufficient resources by third
parties to develop and commercialize products based on library compounds
produced and lead compounds discovered or optimized by the Company. In addition,
there can be no assurance that any such development or commercialization efforts
by third parties would be successful. Should a collaborative partner fail to
develop or commercialize a compound or product to which it has rights from the
Company, the Company may not receive any future milestone payments and will not
receive any royalties associated with such compound or product. In addition, the
Company's collaborative arrangements with its partners do not obligate the
partners to develop or commercialize lead compounds discovered or optimized by
the Company. Each collaborative partner may independently move forward with a
competing lead candidate developed either by such partner internally or by one
of such partners, including the Company's competitors. The potential drugs
developed by a collaborative partner may be derivative of the lead compounds
provided to the customer by the Company. While the Company's existing
collaborative agreements provide that the Company retain milestone and royalty
payment rights with respect to drugs developed from certain derivative
compounds, there can be no assurance that disputes will not arise over the
application of payment provisions to such drugs. There can be no assurance that
current or future collaborative partners, if any, will not pursue alternative
technologies or develop alternative products either on their own or in
collaboration with others, including the Company's competitors, as a means for
developing treatments for the diseases targeted by collaborative arrangements
with the Company. Furthermore, there can be no assurance that conflicts will not
arise between collaborative partners as to proprietary rights to particular
compounds in the Company's libraries. The amount and timing of resources that
current and future collaborators, if any, devote to collaborations with the
Company are not within the control of the Company. There can be no assurance
that such collaborators will perform their obligations as expected. Further, the
Company's collaborations generally may be terminated by its collaborators upon
short notice and following an uncured material breach, which terminations would
result in a loss of anticipated revenue. Termination of the Company's existing
or future collaborative agreements, if any, could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company's strategy also involves obtaining targets from third parties
for screening against its compound libraries. There can be no assurance that the
Company would continue to have access to such targets, novel or otherwise, on an
ongoing basis. Furthermore, despite the Company's installation of independent
teams to conduct each collaborative project, there can be no assurance that
conflicts will not arise among collaborators as to the rights to overlapping
lead candidate compounds developed independently as a result of being identified
through the use of the Company's technologies. Failure to manage multiple
existing and future collaborator relationships successfully, maintain
confidentiality among such relationships or prevent
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<PAGE> 9
the occurrence of such conflicts could lead to disputes that result in, among
other things, a significant strain on management resources, legal claims
involving significant time and expense and loss of reputation, a loss of capital
or a loss of current or future collaborators, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Strategy" and "Business -- CombiChem's
Collaborative Arrangements."
SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS
To date, all revenue received by the Company has been from the payment of
upfront fees and research and development funding paid pursuant to collaborative
agreements. The Company expects that a significant portion of its revenue for
the foreseeable future will be comprised of such payments. The timing of certain
revenue in the future will depend upon the completion of certain milestones as
provided for in the Company's collaborative agreements. In any one fiscal
quarter the Company may receive multiple or no payments from its several
collaborators. Operating results may therefore vary substantially from quarter
to quarter and will not necessarily be indicative of results in subsequent
periods. There can be no assurance that such quarterly fluctuations in revenue
or financial results will not have a material impact on the Company's stock
price.
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in large part on its own, its licensees'
and its licensors' ability to obtain and defend patents for each party's
respective technologies and the compounds and other products, if any, resulting
from the application of such technologies, maintain trade secrets and operate
without infringing upon the proprietary rights of others, both in the United
States and in foreign countries. The patent positions of pharmaceutical and
biotechnology companies, including the Company, are uncertain and involve
complex legal and factual questions for which important legal principles are
largely unresolved. The Company has pending United States and foreign patent
applications relating to various aspects of its technology, certain systems,
materials and methods used in screening compounds and the libraries or compounds
contained therein. These patent applications are either owned by the Company or
rights under them are licensed to the Company. To date, none of the patent
applications owned by the Company have been issued. To the extent that any
foreign patent application filed in the European Patent Office or the Japanese
Patent Office issues as a patent, a challenge to the validity of such patent may
be presented in an opposition proceeding. There can be no assurance that patents
will issue as a result of any such pending applications or that, if issued, such
patents will be sufficiently broad to afford protection against competitors with
similar technologies. The Company is aware of two United States patents issued
to a third party that claim proprietary rights in a computer-based system and
method for automatically generating chemical compounds. Although the Company
believes that its current activities do not infringe these patents, there can be
no assurance that the Company's belief would be affirmed in any litigation over
the patents or that the Company's future technological developments would be
outside the scope of these patents. Further, there can be no assurance that the
third party will not seek to assert such patent rights against the Company,
which would result in significant legal costs and require substantial management
resources, and there can be no assurance that the Company would be able to
obtain a license from the third party, if required, on commercially reasonable
terms, if at all. The inability of the Company either to demonstrate
non-infringement of these and other current and future patents, whether issued
in the United States or overseas, or to obtain the appropriate licenses, would
have a material adverse effect on the Company's business, financial condition
and operations. Moreover, there can be no assurance that the Company or its
customers will be able to obtain patent protection for lead compounds or
pharmaceutical products based upon the Company's or such customers'
technologies. There can be no assurance that any patents issued to the Company
or its collaborative partners, or for which the Company has license rights, will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages to the Company. To the extent
that the Company or its consultants or collaborators use intellectual property
owned by others in their work for the Company, disputes may also arise as to the
rights in related or resulting know-how and inventions. Litigation may be
necessary to enforce the Company's patent and license rights or to determine the
scope and validity of others' proprietary rights. Any such litigation whether or
not the outcome thereof is favorable to the Company, could result in substantial
cost to and diversion of effort by the Company. Further, United States patents
do not provide any remedies for
8
<PAGE> 10
infringement that occurred before the patent is issued. The commercial success
of the Company will also depend upon successfully avoiding the infringement of
current and future patents issued to competitors and upon maintaining the
technology licenses upon which certain of the Company's current products are, or
any future products under development might be, based. If competitors of the
Company prepare and file patent applications in the United States that claim
inventions also claimed by the Company or its collaborators, the Company or its
collaborators may have to participate in interference proceedings declared by
the United States Patent and Trademark Office ("PTO") to determine the priority
of invention, which could result in substantial cost to the Company, even if the
outcome is favorable to the Company. An adverse outcome could subject the
Company to significant liabilities to third parties and require the Company to
license disputed rights from third parties or cease using the technology.
A United States patent application is maintained under conditions of
confidentiality while the application is pending in the PTO, so that the Company
cannot determine the inventions being claimed in pending patent applications
filed by its competitors in the PTO. A number of pharmaceutical and
biotechnology companies and research and academic institutions have developed
technologies, filed patent applications or received patents on various
technologies that may be related to the Company's business. Some of these
technologies, applications or patents may conflict with the Company's
technologies or patent applications. Such conflict could limit the scope of the
patents, if any, that the Company may be able to obtain, or result in the denial
of the Company's patent applications. In addition, there can be no assurance
that the Company would be able to obtain licenses to patents held by third
parties that may cover the Company's activities at a reasonable cost, if at all,
or that the Company would be able to develop or obtain any alternative
technologies. The Company currently has certain licenses from third parties and
in the future may require additional licenses from other parties in order to
refine its Discovery Engine further and to allow its collaborators to develop,
manufacture and market commercially viable products effectively. There can be no
assurance that (i) such licenses will be obtainable on commercially reasonable
terms, if at all; (ii) any patents underlying such licenses will be valid and
enforceable; or (iii) the proprietary nature of any patented technology
underlying such licenses will remain proprietary. The Company relies
substantially on certain technologies that are not patentable or proprietary and
are therefore available to the Company's competitors. The Company also relies on
certain proprietary trade secrets and know-how that are not patentable. Although
the Company has taken steps to protect its unpatented trade secrets and
know-how, in part through the use of confidentiality agreements with its
employees, consultants and certain of its contractors, there can be no assurance
that (i) these agreements will not be breached, (ii) the Company would have
adequate remedies for any breach, or (iii) the Company's trade secrets will not
otherwise become known or be independently developed or discovered by
competitors. Failure by the Company to protect all or part of its patents, trade
secrets and know-how could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Patents and Proprietary Information."
COMPETITION AND RISKS OF OBSOLESCENCE OF TECHNOLOGY
Many organizations are actively attempting to identify, optimize and
generate lead compounds for potential pharmaceutical development. The Company
competes with the research departments of pharmaceutical companies,
biotechnology companies, combinatorial chemistry companies and research and
academic institutions as well as other computationally based drug discovery
companies. Many of these competitors have greater financial and human resources
and more experience in research and development than the Company. Historically,
large pharmaceutical companies have maintained close control over their research
activities, including the synthesis, screening and optimization of chemical
compounds. Many of these companies, which represent one of the largest potential
markets for CombiChem's products and services, are internally developing
combinatorial and computational approaches and other methodologies to improve
productivity, including major investments in robotics technology to permit the
automated parallel synthesis of compounds. In addition, these companies may
already have large collections of compounds previously synthesized or ordered
from chemical supply catalogs or other sources against which they may screen new
targets. Other sources of compounds include compounds extracted from natural
products, such as plants and microorganisms, and compounds created using
rational drug design. Academic institutions, governmental agencies and other
research organizations are also conducting research in areas in which the
Company is working, either on
9
<PAGE> 11
their own or through collaborative efforts. The Company anticipates that it will
face increased competition in the future as new companies enter the market and
advanced technologies become available. The Company's processes may be rendered
obsolete or uneconomical by technological advances or entirely different
approaches developed by one or more of the Company's competitors. The existing
approaches of the Company's competitors or new approaches or technology
developed by the Company's competitors may be more effective than those
developed by the Company. See "Business -- Competition."
DEPENDENCE ON SCALE-UP AND MANAGEMENT OF GROWTH
The Company's success will depend on the expansion of its operations to
service additional collaborative arrangements and the management of these
expanded operations. To be cost-effective in its delivery of services and
products, the Company must enhance productivity through further automation of
its processes and improvements to its technology generally. In addition, the
Company must successfully structure and manage multiple additional collaborative
relationships, including maintaining the confidentiality of the research being
provided to multiple customers. There can be no assurance that the Company will
be successful in adding technical personnel as needed to meet the staffing
requirements of any additional collaborative relationship. In addition, there
can be no assurance that the Company will be successful in its engineering
efforts to automate its processes further or in its initiatives to improve its
technology. Failure to achieve any of these goals could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Business -- CombiChem's Collaborative Arrangements" and
"Business -- Employees."
DEPENDENCE ON KEY EMPLOYEES
The Company is highly dependent on the principal members of its scientific
and management staff. The loss of one or more key members of the Company's
scientific or management staff could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
future success will also depend in part on the continued service of its key
design engineering, scientific, software and management personnel and on its
ability to identify, hire and retain any additional personnel. There is intense
competition for such qualified personnel in the areas of the Company's
activities, and there can be no assurance that the Company will be able to
continue to attract and retain such personnel necessary for the development of
the Company's business. Failure to attract and retain key personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Employees" and "Management."
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products that may be developed by a customer or collaborator of
the Company or, in the event the Company decides to develop a drug beyond the
preclinical phase, by the Company. The nature and the extent to which such
regulation may apply to the Company's customers will vary depending on the
nature of any such pharmaceutical products. Virtually all pharmaceutical
products developed by the Company's customers will require regulatory approval
by governmental agencies prior to commercialization. In particular, human
pharmaceutical therapeutic products are subject to rigorous preclinical and
clinical testing and other approval procedures established by the United States
Food and Drug Administration (the "FDA") and by foreign regulatory authorities.
Various federal and, in some cases, state statutes and regulations also govern
or influence, among other things, the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising and promotion of such
products. Non-compliance with applicable requirements can result in fines,
warning letters, recall or seizure of products, clinical study holds or delays,
total or partial suspension of production, refusal of the government to grant
approvals, and civil and criminal penalties. The process of obtaining these
approvals and the subsequent compliance with appropriate federal and foreign
statutes and regulations are time-consuming and require the expenditure of
substantial resources. Generally, in order to gain FDA approval, a company first
must conduct preclinical studies in the laboratory and in animal models to gain
preliminary information on a compound's efficacy and to identify any safety
problems. Preclinical studies must be conducted by laboratories that comply with
FDA regulations
10
<PAGE> 12
regarding Good Laboratory Practices. The results of these studies are submitted
as a part of an Investigational New Drug application (an "IND") that the FDA
must review before human clinical trials of an investigational drug can begin.
In order to commercialize any products, the Company or its customer will be
required to sponsor and file an IND and will be responsible for initiating and
overseeing the clinical studies to demonstrate the safety and efficacy that are
necessary to obtain FDA and foreign regulatory authority approval of any such
products. Clinical trials are normally done in three phases and generally take
two to five years but may take longer to complete. After completion of clinical
trials of a new product, FDA and foreign regulatory authority marketing approval
must be obtained. If the product is classified as a new drug, the Company or its
customer will be required to file a New Drug Application (an "NDA") and receive
approval before commercial marketing of the drug. The testing and approval
processes require substantial time and effort, and there can be no assurance
that any approval will be granted on a timely basis, if at all. NDAs submitted
to the FDA can take, on average, two to five years to obtain approval. If
questions arise during the FDA review process, approval can take more than five
years. Even if FDA regulatory clearances are obtained, a marketed product is
still subject to continual review, and later discovery of previously unknown
problems or failure to comply with the applicable regulatory requirements may
result in restrictions on the marketing of a product or withdrawal of the
product from the market, as well as possible civil or criminal sanctions.
Domestic manufacturing facilities of the Company or its customers are subject to
biannual inspections by the FDA and must comply with the FDA's current Good
Manufacturing Practices regulations. To comply with such regulations, a
manufacturer must spend funds, time and effort in the areas of production and
quality control to ensure full technical compliance. The FDA stringently applies
regulatory standards for manufacturing. For marketing outside the United States,
the Company or its customer will also be subject to foreign regulatory
requirements governing human clinical trials and marketing approval for
pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Although the Company anticipates that its existing capital resources,
including the proceeds from the October 1997 collaborations and the net proceeds
from this offering, will be adequate to fund the Company's operations at least
through 1998, there can be no assurance that changes will not occur that would
consume available capital resources before such time. The Company anticipates
that it will be required to raise additional capital over a period of several
years in order to continue to conduct its operations. Such capital may be raised
through additional public or private financings, as well as collaborative
arrangements, borrowings and other available sources. There can be no assurance
that the Company's collaborative arrangements will produce revenue adequate to
fund the Company's operating expenses. The Company's capital requirements depend
on numerous factors, including the ability of the Company to enter into
additional collaborative arrangements, competing technological and market
developments, changes in the Company's existing collaborative relationships, the
cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the purchase of additional capital equipment, the
progress of the Company's drug discovery programs and the progress of the
commercialization of milestone- and royalty-bearing compounds by the Company's
customers. The Company does not currently plan independently to develop,
manufacture or market any drugs it discovers. To the extent that additional
capital is needed, it may be raised through the sale of equity or convertible
debt securities, and the issuance of such securities could result in dilution to
the Company's existing stockholders. There can be no assurance that additional
funding, if necessary, will be available on favorable terms, if at all. If
adequate funds are not available, the Company may be required to curtail
operations significantly or to obtain funds through entering into arrangements
with collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates, products or potential
markets that the Company would not otherwise relinquish. The failure to receive
additional funding would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
11
<PAGE> 13
UNCERTAINTY OF PHARMACEUTICAL PRICING AND HEALTH CARE REFORM
The Company expects that substantially all of its revenue in the
foreseeable future will be derived from products and services provided to the
pharmaceutical and biotechnology industries. Accordingly, the Company's success
in the foreseeable future is directly dependent upon the success of the
companies within those industries and their continued demand for the Company's
products and services. The level of revenue and profitability of pharmaceutical
companies may be affected by the continuing efforts of governmental and
third-party payors to contain or reduce the costs of health care through various
means and the initiatives of third-party payors with respect to the availability
of reimbursement. For example, in certain foreign markets, pricing or
profitability of prescription pharmaceuticals is subject to governmental
control. In the United States, there have been, and the Company expects that
there will continue to be, a number of federal and state proposals to implement
similar governmental control. It is uncertain what legislative proposals may be
adopted or what actions federal, state or private payors for health care goods
and services may take in response to any health care reform proposals or
legislation. To the extent that such proposals or reforms have a material
adverse effect on the business, financial condition and profitability of
pharmaceutical and biotechnology companies that are actual or prospective
collaborators for certain of the Company's products and services, the Company's
business, financial condition and results of operations may be adversely
affected.
HAZARDOUS MATERIALS
The research and development processes of the Company involve the
controlled use of hazardous materials. The Company is subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. Although the Company
believes that its activities currently comply with the standards prescribed by
such laws and regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result, and any
such liability could exceed the resources of the Company. In addition, there can
be no assurance that the Company will not be required to incur significant costs
to comply with environmental laws and regulations in the future. The occurrence
of any such event could have a material adverse effect on the Company's
business, financial condition and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Based on the number
of shares outstanding as of September 30, 1997 (after giving effect to the
issuance of an aggregate of 1,250,000 shares to collaborative partners in
October 1997), upon completion of this offering, the Company will have
13,168,505 shares of Common Stock outstanding, assuming no exercise of currently
outstanding options. Of these shares, the 2,250,000 shares sold in this offering
(plus any additional shares sold upon exercise of the Underwriters'
overallotment option) will be freely transferable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), unless they are held
by "affiliates" of the Company as that term is used under the Securities Act and
the regulations promulgated thereunder. Each holder who signed a lock-up
agreement has agreed, subject to certain limited exceptions, not to sell or
otherwise dispose of any of the shares held by them as of the date of this
Prospectus for a period of 180 days after the date of this Prospectus without
the prior written consent of BancAmerica Robertson Stephens. At the end of such
180-day period, approximately 11,502,437 shares of Common Stock (including
approximately 52,657 shares issuable upon exercise of vested options) will be
eligible for immediate resale, subject to compliance with Rule 144 and Rule 701.
The remainder of the approximately 1,666,068 shares of Common Stock outstanding
or issuable upon exercise of options held by existing stockholders or option
holders will become eligible for sale at various times over a period of less
than two years and could be sold earlier if the holders exercise any available
registration rights or upon vesting pursuant to the Company's standard four year
vesting schedule. The holders of 7,754,933 shares of Common Stock have the right
in certain circumstances to require the Company to register their shares under
the Securities Act for resale to the public. If such holders, by exercising
their demand registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have an adverse
effect
12
<PAGE> 14
on the market price for the Company's Common Stock. If the Company were required
to include in a Company-initiated registration shares held by such holders
pursuant to the exercise of their piggyback registration rights, such sales may
have an adverse effect on the Company's ability to raise needed capital. In
addition, the Company expects to file immediately upon the effective date of
this registration statement, a registration statement on Form S-8 registering a
total of approximately 1,925,606 shares of Common Stock including those
outstanding shares which may be repurchased by the Company and shares issuable
upon exercise of outstanding stock options or reserved for issuance under the
Company's stock incentive plan and employee stock purchase plan. See
"Management -- Benefit Plans," "Description of Capital Stock -- Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
Upon completion of this offering, the Company's executive officers,
directors and affiliated entities together will beneficially own approximately
30.1% of the outstanding shares of Common Stock (29.4% if the Underwriters'
overallotment option is exercised in full). As a result, these stockholders will
be able to exercise control over matters requiring stockholder approval,
including the election of directors and mergers, consolidations and sales of all
or substantially all of the assets of the Company. This may prevent or
discourage tender offers for Common Stock unless the terms are approved by such
stockholders. See "Principal Stockholders."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the offering. The initial offering
price will be determined by negotiations between the Company and the
Underwriters and is not necessarily indicative of the market price at which the
Common Stock of the Company will trade after this offering. The market prices
for securities of life sciences companies have been highly volatile, and the
market has experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. Announcements of
technological innovations or new commercial products by the Company or its
competitors, developments concerning proprietary rights, including patents and
litigation matters, publicity regarding actual or potential results with respect
to products or compounds under development by the Company or its strategic
partners, regulatory developments in both the United States and foreign
countries, public concern as to the efficacy of new technologies, general market
conditions, as well as quarterly fluctuations in the Company's revenue and
financial results among other factors, may have a significant impact on the
market price of the Common Stock. In particular, the realization of any of the
risks described in these "Risk Factors" could have a dramatic and adverse impact
on such market price. See "Underwriting."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") authorizes the Board of Directors to issue,
without stockholder approval, 5,000,000 shares of Preferred Stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of Common Stock. Although the
Company has no current plans to issue any shares of Preferred Stock, the
issuance of Preferred Stock or of rights to purchase Preferred Stock could be
used to discourage an unsolicited acquisition proposal. In addition, the
possible issuance of Preferred Stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Company's Common Stock
or limit the price that investors might be willing to pay in the future for
shares of the Company's Common Stock. The Company's Certificate of Incorporation
provides for staggered terms for the members of the Board of Directors. A
staggered Board of Directors and certain provisions of the Company's by-laws and
of Delaware law applicable to the Company could delay or make more difficult a
merger, tender offer or proxy contest involving the Company. Further, the
Company's stock option plans generally provide for the acceleration of vesting
of options granted under such plans in the event of certain transactions which
result in a change of control of the Company. In addition, the Company is
subject to Section 203 of the General
13
<PAGE> 15
Corporate Law of Delaware which, subject to certain exceptions, restricts
certain transactions and business combinations between a corporation and a
stockholder owning 15% or more of the corporation's outstanding voting stock (an
"interested stockholder") for a period of three years from the date the
stockholder becomes an interested stockholder. These provisions may have the
effect of delaying or preventing a change of control of the Company without
action by the stockholders and, therefore, could adversely affect the price of
the Company's Common Stock. See "Management," "Description of Capital
Stock -- Preferred Stock" and "Description of Capital Stock -- Possible
Anti-Takeover Effect of Certain Charter Provisions -- Delaware Anti-Takeover
Statute."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company's management will have broad discretion to allocate proceeds of
this offering to uses that it believes are appropriate. There can be no
assurance that the proceeds of this offering can or will be invested to yield a
positive return. See "Use of Proceeds."
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
investment from the initial offering price. Additional dilution will occur upon
exercise of outstanding options. See "Dilution" and "Shares Eligible for Future
Sale."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,250,000 shares of
Common Stock offered hereby are estimated to be approximately $24.4 million
($28.2 million if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $12.00 per share (the mid-point of the range
set forth on the front cover) and after deducting the estimated underwriting
discounts and commissions and other estimated offering expenses.
The principal purposes of this offering are to increase the Company's
equity capital and to create a public market for the Company's Common Stock in
order to facilitate future access by the Company to public equity markets as
well as to create liquidity for its existing stockholders. The Company intends
to use the net proceeds of this offering, together with its existing cash and
cash equivalents and short-term investments, to fund research and development,
expansion of laboratory and office facilities, working capital and general
corporate purposes. The Company may also use a portion of the net proceeds for
the acquisition of businesses, technologies or products complementary to those
of the Company. There are no present arrangements or agreements for any such
acquisitions.
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the amount and timing of additional
collaborative agreements, the progress of the Company's development,
technological advances, the commercial potential of the Company's services and
the status of the Company's competitors. The Company believes that its existing
cash, cash equivalents and short-term investments, combined with the net
proceeds of this offering, its committed future contract revenue, projected
funding from equipment leases and interest income will be adequate to satisfy
its capital requirements and fund operations at least through 1998. Pending
application of the net proceeds as described above, the Company intends to
invest the net proceeds of this offering in short-term investment-grade
securities.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock. The
Company does not anticipate paying any cash dividends in the foreseeable future.
Payments of future dividends, if any, will be at the discretion of the Company's
Board of Directors after taking into account various factors, including the
Company's financial condition, operating results, current and anticipated cash
needs and plans for expansion. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth as of September 30, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company,
after giving effect to the receipt of up-front payments and the sale of Common
Stock to ImClone and Elan/Athena in October 1997 and the conversion of all
outstanding shares of Preferred Stock into Common Stock effective upon the
closing of this offering, and (iii) pro forma as adjusted to give effect to the
sale by the Company of 2,250,000 shares of Common Stock offered hereby, assuming
a public offering price of $12.00 per share (the mid-point of the range set
forth on the front cover) less estimated underwriting discounts and commissions
and other expenses of this offering.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------
PRO
FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- --------
(in thousands)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments.......... $ 8,402 $ 20,235 $ 44,645
======== ======== ========
Long-term obligations, less current portion................ $ 2,377 $ 2,377 $ 2,377
Redeemable convertible preferred stock:
Preferred Stock, $0.001 par value; 63,196,296 shares
authorized and 7,754,933 shares issued and outstanding
actual; 5,000,000 shares authorized and no shares
issued and outstanding pro forma and pro forma as
adjusted.............................................. 23,130 -- --
Stockholders' equity (deficit):............................
Common Stock, $0.001 par value; 80,000,000 shares
authorized actual; 1,913,572 shares issued and
outstanding actual; 40,000,000 shares authorized pro
forma and pro forma as adjusted; 10,918,505 shares
issued and outstanding pro forma; and 13,168,505
shares issued and outstanding pro forma as
adjusted(1)........................................... 2 11 13
Additional paid-in capital............................... 1,976 32,597 57,005
Notes receivable from stockholders....................... (336) (336) (336)
Deferred compensation.................................... (1,326) (1,326) (1,326)
Accumulated deficit...................................... (16,168) (12,835) (12,835)
-------- -------- --------
Total stockholders' equity (deficit).................. (15,852) 18,111 42,521
-------- -------- --------
Total capitalization............................. $ 9,655 $ 20,488 $ 44,898
======== ======== ========
</TABLE>
- ---------------
(1) Includes 901,658 shares of Common Stock which are currently subject to
repurchase by the Company. Excludes: (i) 441,696 shares of Common Stock
issuable upon the exercise of stock options outstanding as of September 30,
1997, with a weighted average exercise price of $2.81 per share, all of
which are exercisable and 26,177 of which are vested; and (ii) 139,478
shares of Common Stock issuable upon the exercise of outstanding warrants,
with a weighted average exercise price of $2.27 per share.
16
<PAGE> 18
DILUTION
The pro forma net tangible book value of the Company at September 30, 1997
was $18,111,000 or $1.66 per share of Common Stock. Pro forma net tangible book
value per share of Common Stock represents the amount of total tangible assets
of the Company less total liabilities divided by the number of shares of the
Common Stock outstanding after giving effect to the conversion of all
outstanding shares of Preferred Stock into 7,754,933 shares of Common Stock upon
the completion of this offering and the sale of an aggregate of 1,250,000 shares
of Common Stock to ImClone and Elan/Athena in October 1997. After giving effect
to the sale of the 2,250,000 shares of Common Stock offered hereby assuming a
public offering price of $12.00 per share, the mid-point of the range set forth
on the front cover, less estimated underwriting discounts and commissions and
other expenses of this offering, the Company's net tangible book value as of
September 30, 1997 would have been $42,521,000 or $3.23 per share of Common
Stock. This represents an immediate increase in pro forma net tangible book
value per share of Common Stock of $1.57 to existing stockholders and immediate
dilution in pro forma net tangible book value of $8.77 per share to new
investors purchasing Common Stock in this offering. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $12.00
Pro forma net tangible book value of Common Stock as of
September 30, 1997........................................... $1.66
Increase attributable to new investors......................... 1.57
Pro forma net tangible book value of Common Stock after this
offering.......................................................... 3.23
------
Dilution to new investors(1)........................................ $ 8.77
======
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $8.57.
The following table summarizes, on a pro forma basis as of September 30,
1997 (after giving effect to the sale of 1,250,000 shares of Common Stock to
collaborative partners in October 1997), the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the existing stockholders and by new investors purchasing
shares in this offering (before deduction of estimated underwriting discounts
and commissions and other expenses of this offering):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 10,918,505 82.9% $31,333,859 53.7% $ 2.87
New investors........................ 2,250,000 17.1 27,000,000 46.3 12.00
------------ ---- ---------- ----
Total.............................. 13,168,505 100.0% $58,333,859 100.0%
============ ==== ========== ====
</TABLE>
All of the above computations assume no exercise of outstanding options or
warrants to purchase Common Stock. As of September 30, 1997, options to purchase
441,696 shares of Common Stock were outstanding at a weighted average exercise
price of approximately $2.81 per share under the Company's stock option plan and
warrants to purchase 139,478 shares of Common Stock were outstanding at a
weighted average exercise price of approximately $2.27 per share. To the extent
these options become vested and are exercised, or the warrants are exercised,
there will be further dilution to new investors.
17
<PAGE> 19
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of operations for the period from May 23, 1994 (inception) to
December 31, 1994, the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1997, and with respect to the Company's balance
sheets at December 31, 1995 and 1996 and September 30, 1997, are derived from
the financial statements of the Company that have been audited by Ernst & Young
LLP, which are included elsewhere herein and are qualified by reference to such
financial statements. The balance sheet data at December 31, 1994 has been
derived from the financial statements audited by Ernst & Young LLP, which are
not included herein. The unaudited statement of operations data for the nine
months ended September 30, 1996 have been derived from unaudited financial
statements also appearing herein which in the opinion of management include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and results of operations for the
unaudited interim periods. The selected financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial statements and
notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 23, 1994 YEAR ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------- -------------------
1994 1995 1996 1996 1997
-------------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenue....................... $ -- $ 50 $ 2,967 $ 1,070 $ 4,599
Expenses:
Research and development
expenses....................... 413 4,763 5,240 3,810 5,985
General and administrative
expenses....................... 298 2,000 2,845 1,709 2,356
------ -------- -------- -------- --------
Total operating expenses............ 711 6,763 8,085 5,519 8,341
------ -------- -------- -------- --------
Loss from operations................ (711) (6,713) (5,118) (4,449) (3,742)
Interest income, net................ 5 38 -- (12) 273
Foreign tax expense................. -- -- -- -- (200)
------ -------- -------- -------- --------
Net loss............................ $ (706) $(6,675) $(5,118) $(4,461) $(3,669)
====== ======== ======== ======== ========
Pro forma net loss per share(1)..... $ (0.66) $ (0.45)
======== ========
Shares used in computing pro forma
net loss per share(1)............ 7,797 8,192
-------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------ ------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term
investments................................... $1,622 $ 3,136 $ 12,533 $ 8,402
Working capital................................. 1,420 1,990 9,271 5,288
Total assets.................................... 1,796 4,150 16,658 13,363
Long-term obligations, less current portion..... -- 424 1,753 2,377
Redeemable convertible preferred stock.......... 2,250 9,650 23,107 23,130
Accumulated deficit............................. (706) (7,381) (12,499) (16,168)
Total stockholders' equity (deficit)............ (682) (7,261) (12,363) (15,852)
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per share and shares used in computing pro
forma net loss per share.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations may contain forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus.
OVERVIEW
CombiChem is a computational drug discovery company that is applying its
proprietary design technology and rapid synthesis capabilities to accelerate the
discovery process for new drugs. The Company believes its approach offers
pharmaceutical and biotechnology companies the opportunity to conduct their drug
discovery efforts in a more productive and cost-effective manner. Using its
proprietary Discovery Engine process, the Company focuses on the generation,
evolution and optimization of potential new lead candidates for its
collaborative partners, who will then develop, manufacture, market and sell any
resulting drugs. CombiChem believes that its process is widely applicable to a
variety of disease targets and therapeutic indications. Through September 30,
1997, the Company has established collaborative agreements with Teijin, Roche
Bioscience and Sumitomo, and in October 1997 the Company established
collaborative agreements with ImClone and Elan/Athena. In addition, the Company
intends to use its approach on internal programs to discover new lead candidates
and then to outlicense them to third parties, while retaining a larger economic
interest. Since inception in May 1994, and including the October 1997
collaborative agreements, the Company has raised $31.3 million through private
sales of equity securities.
The Company's revenue to date is primarily attributable to three major
corporate collaborations: Teijin, entered into in March 1996, Roche Bioscience,
entered into in October 1996, and Sumitomo, entered into in August 1997. Under
these collaborations, the Company has received aggregate payments of $8.7
million through September 30, 1997 and has recognized an aggregate of $7.5
million as revenue, including $4.5 million of technology access fees and $3.0
million of contract research revenue. Revenue from milestone payments will be
recognized when the results or events stipulated in the agreement have been
achieved. To date, the Company has not achieved any milestones under any of its
collaboration agreements. The Company is also entitled to receive royalty
payments if any product is commercialized under the collaborations. To date, the
Company has not earned any revenue related to product sales, and such revenue is
not expected for the next few years, if at all.
The Company has not been profitable since inception and has incurred a
cumulative net loss of $16.2 million through September 30, 1997. Losses have
resulted principally from costs incurred in research and development activities
related to the Company's efforts to develop its technologies and from the
associated administrative costs required to support these efforts. The Company's
ability to achieve profitability is dependent on its ability to market its
technology to pharmaceutical, biotechnology or agrochemical companies.
In connection with the collaborative agreements entered into in October
1997, the Company received aggregate proceeds of $7.5 million from the sale of
Common Stock and $3.3 million for upfront technology access fees to be
recognized as revenue in the fourth quarter of 1997. Included in the upfront
technology access fees is $2.0 million representing a premium paid by the
collaborators over the fair market value of the Common Stock.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 and 1996
Revenue
The Company's revenue for the nine-month period ended September 30, 1997
increased $3.5 million to $4.6 million from $1.1 million for the same period in
1996. This was attributable to revenue related to the Company's collaborative
agreements and the technology access fee received from Sumitomo. The Company
19
<PAGE> 21
began recognizing revenue from the Teijin and Roche Bioscience collaborations in
March and October 1996, respectively. The Company began recognizing contract
research revenue from the Sumitomo collaboration in August 1997.
Operating Expenses
The Company's research and development expenses for the nine-month period
ended September 30, 1997 increased $2.2 million to $6.0 million from $3.8
million for the same period in 1996. This increase reflects increased research
and development expenses incurred both on behalf of collaborators and in support
of the development of the Company's technology. The Company has the ability to
direct its scientific personnel to work either on its collaborative agreements
or on its internal research projects as needs arise. The Company expects
research and development spending to increase over the next several years due to
increased activities related to collaborations, internal programs and technology
development.
The Company's general and administrative expenses for the nine-month period
ended September 30, 1997 increased $0.7 million to $2.4 million from $1.7
million for the same period in 1996. This increase reflects increased business
development activities and administrative support for the Company's expansion in
1997. These expenses will likely continue to increase in future periods to
support the projected growth of the Company.
Net Loss
The Company's net loss for the nine-month period ended September 30, 1997
decreased $0.8 million to $3.7 million from $4.5 million for the same period in
1996. The decrease is primarily attributable to additional revenue generated
from corporate collaborations during 1997.
Years Ended December 31, 1996 and 1995
Revenue
The Company's revenue for the year ended December 31, 1996 increased to
$3.0 million from $50,000 for the same period in 1995. This increase was
attributable to revenue related to the Company's collaborative agreements with
Teijin and Roche Bioscience which were entered into during 1996.
Operating Expenses
The Company's research and development expenses for the year ended December
31, 1996 increased $0.4 million to $5.2 million from $4.8 million for the same
period in 1995. This increase reflects increased research and development
expenses on behalf of collaborators and for the development of the Company's
technology, including investment in the Company's discontinued automated
synthesis instruments.
The Company's general and administrative expenses for the year ended
December 31, 1996 increased $0.8 million to $2.8 million from $2.0 million for
the same period in 1995. This increase was primarily due to costs associated
with increased business development activities and administrative support, which
accompanied the Company's expansion during 1996.
Net Loss
The Company's net loss for the year ended December 31, 1996 decreased $1.6
million to $5.1 million from $6.7 million for the same period in 1995. The
decrease was primarily attributable to the increase in revenue generated from
the Teijin and Roche Bioscience collaborations.
Year Ended December 31, 1995 and Eight-Month Period Ended December 31, 1994
Revenue
The Company's revenue for the year ended December 31, 1995 consisted of
$50,000 of grant revenue. No revenue was earned by the Company in 1994.
20
<PAGE> 22
Operating Expenses
The Company's research and development expenses for the year ended December
31, 1995 increased $4.4 million to $4.8 million from $0.4 million for the
eight-month period ended December 31, 1994. This increase primarily reflects the
expansion and development of the Company's technologies and a full year of
operations in 1995.
The Company's general and administrative expenses for the year ended
December 31, 1995 increased $1.7 million to $2.0 million from $0.3 million for
the eight-month period ended December 31, 1994, reflecting increased business
development activities and administrative support as well as a full year of
operations in 1995.
Net Loss
The Company's net loss for the year ended December 31, 1995 increased $6.0
million to $6.7 million from $0.7 million for the eight-month period ended
December 31, 1994. This increase was primarily attributable to the Company's
scale-up of research and development activities and a full year of operations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company held cash and cash equivalents and
marketable securities with a value of $8.4 million. The Company's working
capital at September 30, 1997 was $5.3 million. After giving effect to the
execution of the two additional collaborative agreements in October 1997 cash
and cash equivalents and marketable securities would have been $20.2 million and
working capital would have been $16.1 million. The Company has funded operations
to date with sales of preferred stock and common stock totaling $31.3 million,
payments from corporate collaborators totaling $18.7 million, and the
utilization of capital equipment lease financing totaling $4.6 million. The
Company has maintained capital lease arrangements since 1994. Under these
arrangements, the Company has funded certain capital expenditures with lease
terms ranging from 36 to 48 months in duration. As of September 30, 1997, the
Company had utilized $4.5 million of the available $7.9 million financing
facility.
Net cash used in financing activities for the nine-month period ended
September 30, 1997 was $164,000, primarily reflecting payments on capital
equipment financing. Net cash provided by financing activities for the year
ended December 31, 1996 was $12.2 million, largely due to a $13.0 million equity
investment. Net cash provided by financing activities for the year ended
December 31, 1995 was $7.8 million, resulting mainly from capital contributions
and proceeds from bridge financing.
Net cash used in operating activities for the nine-month period ended
September 30, 1997 and for the year ended December 31, 1996 was $3.7 million and
$2.4 million, respectively, primarily due to the Company's scale-up of research
and development activities.
Net cash provided by investing activities during the nine-month period
ended September 30, 1997 was $7.8 million, resulting primarily from maturities
of short-term investments. Net cash used in investing activities for the year
ended December 31, 1996 was $12.6 million as compared to $0.2 million for the
year ended December 31, 1995. This increase primarily reflects purchases of
short-term investments.
Although the Company anticipates that its existing capital resources,
including the proceeds from the October 1997 collaborations and the net proceeds
from this offering, will be adequate to fund the Company's operations at least
through 1998, there can be no assurance that changes will not occur that would
consume available capital resources before such time. The Company anticipates
that it will be required to raise additional capital over a period of several
years in order to continue to conduct its operations. Such capital may be raised
through additional public or private financings, as well as collaborative
arrangements, borrowings and other available sources. There can be no assurance
that the Company's collaborative arrangements will produce revenue adequate to
fund the Company's operating expenses. The Company's capital requirements depend
on numerous factors, including the ability of the Company to enter into
additional collaborative arrangements, competing technological and market
developments, changes in the Company's existing collaborative relationships, the
cost of filing, prosecuting, defending and enforcing patent
21
<PAGE> 23
claims and other intellectual property rights, the purchase of additional
capital equipment, the progress of the Company's drug discovery programs and the
progress of the commercialization of milestone- and royalty-bearing compounds by
the Company's customers. The Company does not currently plan independently to
develop, manufacture or market any drugs it discovers. To the extent that
additional capital is needed, it may be raised through the sale of equity or
convertible debt securities, and the issuance of such securities could result in
dilution to the Company's existing stockholders. There can be no assurance that
additional funding, if necessary, will be available on favorable terms, if at
all. If adequate funds are not available, the Company may be required to curtail
operations significantly or to obtain funds through entering into arrangements
with collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates, products or potential
markets that the Company would not otherwise relinquish. The failure to receive
additional funding would have a material adverse effect on the Company's
business, financial condition and results of operations.
NET OPERATING LOSSES
At December 31, 1996, the Company had available net operating loss ("NOL")
carryforwards of approximately $11.7 million for federal and California income
tax purposes, which will begin to expire in 2009 and 2002, respectively. In
addition, the Company had federal and California research and development credit
carryforwards of approximately $104,000 and $144,000, respectively, which will
begin to expire in 2010. The Company's ability to utilize such NOL carryforwards
may be limited under Section 382 of the Internal Revenue Code in the event of
certain cumulative changes of ownership of the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128),
which supersedes APB Opinion No. 15. SFAS No. 128 replaces the presentation of
primary earnings per share (EPS) with "Basic EPS" which reflects only the
weighted-average common shares outstanding for the period. Companies with
complex capital structures, including the Company, will also be required to
present "Diluted EPS" that reflect the potential dilution, if any, of common
stock equivalents such as employee stock options and warrants to purchase common
stock. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997.
22
<PAGE> 24
BUSINESS
OVERVIEW
CombiChem is a computational drug discovery company that is applying its
proprietary design technology and rapid synthesis capabilities to accelerate the
discovery process for new drugs. The Company believes its approach offers
pharmaceutical and biotechnology companies the opportunity to conduct their drug
discovery efforts in a more productive and cost-effective manner. Using its
proprietary Discovery Engine process, the Company focuses on the generation,
evolution and optimization of potential new lead candidates for its
collaborative partners who will then develop, manufacture, market and sell any
resulting drugs. CombiChem believes that its process is widely applicable to a
variety of disease targets and therapeutic indications. To date, the Company has
established collaborative agreements with Teijin, Roche Bioscience, Sumitomo,
ImClone and Elan/Athena. In addition, the Company intends to use its approach on
internal programs to discover new lead candidates and then to outlicense them to
third parties, retaining a larger economic interest in such candidates.
INDUSTRY BACKGROUND
During the past decade, significant advances in life sciences research and
the increasing appreciation of the complexity of biological processes have
highlighted the productivity limitations of traditional approaches to drug
discovery. These limitations, together with increased competition in the
pharmaceutical and biotechnology industries, have created intense pressure on
companies involved with drug development to reconsider the allocation of their
research budgets and to improve the cost-effectiveness of their drug discovery
process.
Between 1976 and 1996, the number of new chemical entities approved by the
FDA remained relatively constant, ranging between 12 to 30 per year, despite a
more than 10-fold increase in research and development spending by
pharmaceutical and biotechnology companies. Furthermore, it typically takes 12
to 15 years from the original concept of modulating the activity of a particular
biological target to the market introduction of a drug that performs such a
function. The average cost of bringing a new drug to market has been estimated
to be in excess of $300 million.
Frustrated with the inefficiencies of traditional drug discovery
approaches, pharmaceutical and biotechnology companies are beginning to embrace
new enabling technologies, such as combinatorial chemistry, genomics,
structure-based drug design, high-throughput screening and information
technologies, in order to gain a competitive advantage by accelerating the time
to develop and commercialize new compounds. These technologies also have the
potential to reduce significantly the cost associated with drug discovery.
The Traditional Drug Discovery Process and its Limitations
The traditional path to discovering a therapeutic drug compound typically
begins with the identification of one or more biological targets that are
believed to mediate a disease state. A biological test or assay based on a
target is then developed, predicated on the scientific belief that a compound
binding with this target may have a therapeutic benefit with respect to the
disease under study. Such an assay facilitates the screening (testing to
determine which of the compounds have the desired activity against the target)
of a collection of hundreds to thousands of candidate compounds (a library) that
have been synthesized in the laboratory. Compounds that bind to the target
protein and modulate its activity are referred to as hits. Medicinal chemists
optimize these hits until they have sufficient potency to become lead candidates
and then improve their preclinical characteristics (such as potency, specificity
and in vivo profile) further with the goal of producing drug development
candidates.
23
<PAGE> 25
In summary, the traditional drug discovery process consists of the
following steps:
[DRUG DISCOVERY PROCESS FLOW CHART]
The traditional drug discovery process shown above is extremely expensive,
inefficient and unreliable. Failure at any point during this discovery process
would typically force the scientist either to abandon the project or to return
to the initial starting point and repeat the process. As a result, the discovery
of a novel therapeutic agent for a specified target can take years or can fail
entirely.
In recent years, the advent of robotic high-throughput screening and
automated synthesis technologies, such as combinatorial chemistry and parallel
synthesis, has begun to relieve one apparent bottleneck involving screening,
synthesis and purification of compounds in the library. While these technologies
facilitate the mechanics of drug discovery, they address neither the
unreliability of the process nor its principal inefficiency: the number of
iterations required to find a lead candidate. To address these problems, a novel
approach is needed that can provide information to improve the selection of each
subsequent library of compounds to synthesize, potentially reducing the number
of iterations. Only by improving the processes of data analysis and compound
selection can a laborious, iterative procedure be forced to converge on the lead
candidates with the most desirable pharmacological profiles.
Current Combinatorial Chemistry and Computational Approaches and Their
Limitations
Combinatorial chemistry involves the rapid creation of large collections of
chemical compounds for the purpose of identifying hits through random screening.
Combinatorial chemistry has made possible the synthesis of thousands or even
millions of molecules in a short period of time instead of the traditional
approach of synthesizing only one molecule at a time. Over the last decade, the
field of combinatorial chemistry has evolved from only companies that design and
synthesize molecules to include those that develop software and automation to
facilitate design and synthesis. These companies tend to use highly varied
approaches, including: focusing on single, pure compounds versus making
mixtures; building large versus small, focused libraries; automating part versus
all of the process; and using or not using medicinal chemistry as a principal
guiding force.
Computational methods are also employed in drug discovery. These methods
involve the use of computer-based and information technologies to manage large
chemical databases, to examine X-ray crystal structures of the target when
available (structure-based drug design), to operate the assorted automated
devices available for the synthesis of libraries, to determine how changes in
the structure affect the activity of a molecule (SAR activity) and to generate
"virtual libraries" using chemical building blocks from readily available
sources.
Currently, the dominant method of pursuing drug discovery focuses on
screening large libraries to search for a lead candidate directly in the
library, or at least a hit, which can then be optimized by the more traditional
techniques of medicinal chemistry to generate a development candidate. The
Company believes this brute-force, trial-and-error approach is flawed because
limited or no information has been factored into the library design to force the
iterative drug discovery process to converge. This limitation in current
combinatorial chemistry approaches is underscored by the fact that most compound
libraries used for screening have been constructed with the sole objective of
isolating a development candidate with the highest binding affinity to a target.
In order to achieve this objective against all possible targets, it is believed
such libraries would have to contain in excess of 100 million compounds, which
size is well beyond current synthesis capabilities. In addition, the challenge
of drug discovery is not only to find a lead candidate that exhibits
24
<PAGE> 26
activity against a biological target. It is also important to ensure that the
lead candidate will have characteristics that will enable it to overcome the
more difficult in vivo hurdles of toxicity, metabolism or problems with oral
administration, none of which will become evident until early preclinical
testing. Unless information can be extracted about which characteristics are
most necessary for binding, it is difficult to know how to modify a compound to
maintain tight binding affinity while overcoming in vivo hurdles. Furthermore,
if no hits are found after the screening of a traditional combinatorial library,
a scientist has no starting point for the drug discovery process.
While both combinatorial chemistry and computational approaches are useful
in drug discovery to some degree, they are severely taxed by the complexity of
properly using the information available for library design, as evidenced by the
following drawbacks: (i) the inability to derive and integrate information both
from compounds that are active and those that are inactive against the target;
(ii) the inability to probe the target in order to compute ways of improving the
predictive models or hypotheses; and (iii) the inability to handle the dual
requirements of speed and quality when large data sets must be analyzed. The
Company believes that these inabilities to use information efficiently
constitute fundamental reasons that current discovery approaches have been only
moderately successful in generating lead candidates and development candidates,
despite the large number of initial hits.
COMBICHEM'S SOLUTION AND ADVANTAGES
The Company believes that it offers a solution to drug discovery by
combining its proprietary design technology and rapid synthesis capabilities in
a unique way. The Company's convergent, iterative process for drug
discovery -- its Discovery Engine (see the following diagram) -- is based on
libraries designed for information.
The design of libraries for information involves the selection of compounds
that collectively probe the biological target in a systematic way to determine
the chemical characteristics required for binding to such target. By identifying
features that discriminate between active and inactive compounds, the computer
constructs predictive models, called hypotheses, and then uses those models to
select a more focused library of compounds. The computer selects compounds from
the Company's proprietary Virtual Library, a computational representation of
more than 500 billion drug-like molecules chosen for the ease of laboratory
synthesis. CombiChem believes that by repeating this process of selecting,
synthesizing and screening informative compounds and analyzing the resulting
data, the Discovery Engine quickly converges on the most predictive hypothesis.
This hypothesis describes the characteristics a compound must possess to be
active against the target and, thus, is used to select a variety of potent lead
candidates.
Each cycle of the Discovery Engine refines the computer's definition of the
best hypothesis for the target in question. After several cycles, the resulting
hypothesis can be used to design highly potent compounds from a broad range of
chemical classes including those not readily amenable to combinatorial synthesis
techniques. By facilitating the design of a variety of potent compounds for
preclinical testing, the Discovery Engine has the potential to increase greatly
the likelihood that at least one of these compounds passes the in vivo and other
downstream hurdles and eventually becomes a commercial drug.
25
<PAGE> 27
[DISCOVERY ENGINE FLOW CHART]
CombiChem believes that the advantages of its Discovery Engine include the
following:
Generating lead candidates from multiple structural series that exhibit the
same biological activity. By using predictive hypotheses to search the more than
500 billion-molecule Virtual Library, multiple structural series of compounds
that have the same effect on the target can be identified. The availability of
multiple structural series increases the likelihood that at least one of these
molecules will overcome the in vivo hurdles in preclinical development. In
addition, this provides an opportunity for the Company and its collaborators to
enhance the intellectual property position that potentially can be developed
around these compounds by having more than one patentable structural series.
Generating lead structures against a wide range of targets including those
for which little or no information is available. The Universal Informer Library
consists of a computer-designed, proprietary collection of approximately 10,000
physical compounds that can be screened against targets where little or no
information is available about the molecular structures that may be active
against those targets. Once the Universal Informer Library has been screened,
the information obtained can be used to start the Discovery Engine process. In
addition, because the technology is not dependent on having prior knowledge
about the target (e.g., an X-ray crystal structure representative of the
target), it can potentially be used to discover drugs against any target the
activity of which could be modified through binding a small molecule.
Achieving rapid generation, evolution and optimization of lead
candidates. By combining flexible design technology and rapid synthesis, the
Company's Discovery Engine can produce lead candidates for any of the three
types of drug discovery programs -- lead generation, lead evolution or lead
optimization -- with less than two years of effort. See "CombiChem's Discovery
Programs."
26
<PAGE> 28
Reducing synthesis and screening costs. The Company's design technology
facilitates the use of small, informative libraries. Use of these small
libraries decreases the costs associated with synthesis and screening. In
addition, the Virtual Library of drug-like molecules has been explicitly
constructed for the ease of laboratory synthesis.
STRATEGY
The Company's objective is to be the industry leader in the generation,
evolution and optimization of novel lead candidates. The Company intends to
utilize its scientific and technology assets in the discovery process through a
mix of collaborative and internal programs by applying the following business
strategies:
To establish multiple collaborations with large pharmaceutical and
biotechnology companies focused on biological targets chosen by the
collaborators. The Company intends to collaborate with large pharmaceutical and
biotechnology companies on fully funded programs aimed at biological targets
chosen by these collaborators. The Company's collaborative efforts are
exclusively focused on the discovery process, with a particular emphasis on the
discovery of novel compounds against biological targets. The Company believes
its technology platform provides it with opportunities to establish multiple
collaborations, which may be for the same disease state, thereby building a
portfolio of opportunities that may include upfront fees, research support,
milestone payments and royalties.
To partner with companies to apply discovery technologies to jointly
agreed-upon biological targets. In addition to collaborations on designated
biological targets, the Company intends to establish arrangements for jointly
funded discovery programs aimed at jointly agreed-upon biological targets,
typically with biotechnology companies. In these arrangements, the Company and
its partner will choose an appropriate biological target, the Company will apply
its discovery technologies to develop novel compounds against the specific
target, and the partner will fully fund and complete the drug development
process. The Company and its partner will share in the economic interest
resulting from their efforts.
To conduct internal discovery efforts aimed at selected biological targets,
retaining a larger economic interest in the subsequently outlicensed lead
candidates. The Company also intends to conduct its own internally funded
discovery programs by choosing biological targets of current scientific interest
and working in collaboration with screening companies. After identifying lead
candidates that are ready for development, the Company intends to outlicense
them, retaining a larger economic interest in such candidates as they are
developed and commercialized by a third party.
To expand collaborative opportunities in alternative industries such as the
agrochemical field. The Company has initially targeted large pharmaceutical and
biotechnology companies in its marketing efforts. The Company is considering
additional opportunities in alternative industries, including the agrochemical
field.
To maintain technology leadership in both software development and rapid
synthesis capabilities. The Company intends to continue to extend its technology
leadership through enhancements of existing software, design of future
generations of software and continued advancements of its synthesis
capabilities. The Company believes that these developments will allow it to
decrease the time required to discover lead candidates and to maintain its
technology leadership and competitive advantage.
COMBICHEM'S PROCESS: THE DISCOVERY ENGINE
The successful implementation of the Company's Discovery Engine process
requires the direct involvement of and interaction between its chemists and its
software applications team. This process consists of the following steps:
Data analysis -- the compilation and analysis of screening data, literature
information and available data about the target. The starting point for a drug
discovery program varies depending on the amount of prior information that is
available. The collaborator may have tested its corporate collection of
compounds or some other chemical library and have information regarding
structures of compounds that are initial hits (moderately active compounds),
information regarding structures that are inactive against the particular
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target or prior information about the target structure itself. On the other
hand, if little or no prior information or screening data is available on the
initial hits or target, the Company will make available for screening its
proprietary Universal Informer Library as a way of generating a relevant set of
information with which to initiate the Discovery Engine. See "CombiChem's
Proprietary Technologies -- Universal Informer Library."
The analysis of the available information is a critical step in the process
because it will determine what type of program will be undertaken -- lead
generation, lead evolution or lead optimization -- and the resources that will
be required. See "CombiChem's Discovery Programs."
Hypothesis generation -- the software-based generation of models that
predict the biological activity of molecular structures. Once the analysis of
the available data is completed by the Company's chemists and software
applications team, the information is used as input for hypothesis generation,
the first step of which involves conformational analysis.
- Conformational analysis. Conformational analysis is performed on each
active and inactive molecule to determine which shapes or conformations
such molecules can take. Because it is typically unknown which of these
shapes a particular molecule will assume when it shows its greatest
activity against a biological target, all reasonable conformations are
computationally described and analyzed. The Company's proprietary
technology allows for the analysis of large data sets and complex
molecular structures to be completed with both quality and speed.
- Hypothesis generator. Using the screening data and the results of
conformational analysis, the hypothesis generation software produces
computational models (called hypotheses) that attempt to explain the
observed differences in biological activity between active and inactive
molecules. In the early phases of a discovery program, the hypothesis
generator will often generate many hypotheses that are consistent with
the data, but the repeated application of the Discovery Engine
systematically tests the hypotheses, eliminating some while strengthening
others by providing supporting data. Repeating this procedure quickly
results in predictive hypotheses. The Company believes that its
proprietary design technology differs from others currently in use in
that it (i) includes all of the screening data (including inactives) in
generating hypotheses, (ii) takes into account a much broader
characterization of molecule-target interaction and (iii) forces
convergence to a predictive model of the important binding features by
probing the target systematically using rapid synthesis and screening.
Virtual Library search -- the computational search of the Virtual Library
to find molecular structures that fit the hypotheses. Once the hypotheses have
been generated, they are used to search the Company's proprietary Virtual
Library to identify molecular structures that have the features represented in
the hypotheses. The Virtual Library is a computational representation of more
than 500 billion drug-like molecules chosen for the ease of laboratory
synthesis. For each hypothesis that is generated, a more focused library of tens
to hundreds of molecules from the Virtual Library will be chosen by the computer
for synthesis in the laboratory. The Virtual Library is generated and searched
by proprietary design technology, which can exploit much larger libraries than
is possible with commercially available tools. See "CombiChem's Proprietary
Technologies -- Virtual Library."
Library synthesis -- the laboratory synthesis of molecular structures that
are selected from the Virtual Library using a wide range of chemistries. Once
the more focused library of compounds is designed, using molecules chosen from
the Virtual Library, the Company's chemists are responsible for synthesizing the
compounds in the laboratory. Unlike many combinatorial chemistry groups, the
chemists are not restricted to particular chemical reactions or a limited list
of structural templates, thus providing maximum flexibility to synthesize the
libraries quickly. See "CombiChem's Proprietary Technologies -- Synthesis and
Analytical Chemistry Technology."
The above four steps in the Discovery Engine process are completed by
project teams within the Company. Once the molecules are synthesized, those
libraries are then sent to the partner (or a contract group) for screening. Data
from these assays will be available to the Company for the next iteration of the
cycle. With each such iteration, the Discovery Engine provides more information,
improving the hypotheses and increasing the likelihood of discovering active
molecules with desirable pharmacological characteristics.
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Eventually, the hypotheses will converge to provide lead compounds that warrant
further testing as development candidates. It currently takes the Company's
scientists approximately three months to advance through the steps in one
Discovery Engine cycle. Depending upon the information available to start a
project, it may take two to four iterations of the cycle to generate strongly
predictive hypotheses that may eventually yield novel and highly active lead
candidates.
The Company's Discovery Engine process is being validated by both its
active collaborative programs and retrospective analysis of drug discovery
examples taken from the recent scientific literature. In one such example, the
Company applied its design technology to a project where the data provided was a
compilation of third-party research into the design of HIV protease inhibitors.
The objective was to determine whether CombiChem's process could be used to
discover novel inhibitors for the enzyme given a collection of only weakly
active hits from screening. The Company generated hypotheses with distinct
features by collecting information on eight weakly active HIV protease
inhibitors and 500 randomly selected inactive molecules with the same drug-like
characteristics as the weakly active compounds. Each of these weakly active
compounds was found by either an academic or commercial team in the early phases
of trying to discover an HIV protease drug. To assess whether the generated
hypotheses are, in fact, able to predict the activities of new molecules,
several highly potent HIV protease inhibitors, including currently marketed
drugs, were added to a virtual library of several hundred inactive compounds.
Using the hypotheses, the computer searched the Virtual Library, and the search
produced a list of highly ranked protease inhibitors with a variety of chemical
structures, including some of the highly potent HIV protease inhibitors
currently under development or marketed by major pharmaceutical companies. The
structures selected from the Virtual Library differ significantly from those
used to develop the hypotheses, validating the Company's capabilities in lead
evolution. The Company has similarly validated its technology on over a dozen
other literature data sets and on several programs with collaborators. In one
lead evolution program with a collaborator, for example, the Company has already
been successful in evolving from one structural series to multiple, novel
structural series while improving the biological activity. These results and a
variety of equally successful applications of the Discovery Engine demonstrate
the viability of the Company's computational drug discovery methods and the
strength of its proprietary technology.
COMBICHEM'S PROPRIETARY TECHNOLOGIES
To implement its Discovery Engine process, CombiChem has developed and
assembled an integrated set of proprietary technologies. These include the
following:
Universal Informer Library
The use of many traditional drug discovery approaches presupposes the
existence of prior information to start the process. However, recent efforts
such as the Human Genome Project and others are producing a number of novel
targets about which there is limited prior information. In addition, there are
many known targets for which no suitable leads have been identified. To address
these situations, CombiChem developed a Universal Informer Library ("UIL"). The
UIL consists of a computer-designed, proprietary collection of approximately
10,000 physical compounds. Unlike other libraries that are used to identify lead
structures directly after screening, the UIL is used to gather information
concerning the relevant binding features that are important to the target. The
compounds in the UIL are highly promiscuous molecules, having the potential to
bind to many different targets. Screening against the UIL is therefore intended
to provide a few, weakly active compounds against the background of many, varied
inactive compounds. Using this data, hypotheses may be extracted, which allow
the Discovery Engine to be initiated.
The UIL was designed to provide hits for virtually all possible targets,
but if there is some reason to expect certain structural features to be relevant
to a particular target, the UIL can be augmented with compounds that contain
those features. In this way, information gained from prior experience can be
incorporated into the UIL; this may improve the hypotheses and therefore reduce
the number of cycles required to converge.
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The Company has validated its UIL approach by screening a subset of the UIL
against a wide range of targets and achieving an outcome comparable to that
typically seen in the pharmaceutical industry with libraries containing hundreds
of thousands of compounds.
Virtual Library
CombiChem's Virtual Library is a computational representation of more than
500 billion drug-like molecules chosen for the ease with which they can be
synthesized in the laboratory. To maximize the likelihood that the Virtual
Library will contain potent, patentable compounds active against most targets,
the Company has populated it with hundreds of novel structural templates, each
of which has two to four sites at which a wide variety of structural changes can
be made synthetically using available chemicals. This chemistry can also be
scaled up to give ready access to quantities of each lead candidate sufficient
to perform early preclinical testing. The Virtual Library is generated and
searched by two components of the Company's proprietary software: Virtual
Library Cascader(TM) software and Virtual Library Search software. See
"-- Design Technology."
Synthesis and Analytical Chemistry Technology
Once the Virtual Library is searched for collections of molecules that
match the hypotheses, the Company's chemists initiate synthesis of these
molecules in the laboratory. The challenge for CombiChem's chemists is to select
the technique that will most quickly achieve the synthesis of the library. While
there is considerable debate throughout the industry about the relative merits
of various methods of chemical synthesis (solid versus solution phase, for
example), CombiChem's chemists have the flexibility to use the appropriate
approach for each specific synthesis task. The Company believes it has expertise
in most or all of the readily used techniques and, in addition, has access to a
number of new proprietary methods.
As long as relatively straightforward chemistry is applied to library
production, synthesis is generally not the rate-limiting step. The challenge
lies in the isolation and purification of the library compounds. The Company
applies several approaches, including a number of proprietary semi-automated
techniques, to facilitate these procedures in order to achieve its purity
standards of greater than 85%.
Design Technology
The Company relies on its proprietary design technology in order to
complete several of the key steps in its Discovery Engine. The proprietary
design technology includes:
Conformational analysis software -- a computer program for identifying the
distinct three-dimensional shapes of a molecule. Conformational analysis is
performed on each active and inactive molecule to determine which shapes or
conformations such molecules can take. Because it is typically unknown which of
these shapes a particular molecule will assume when it shows its greatest
activity against a biological target, all reasonable conformations are
computationally described and analyzed. The Company has developed proprietary
conformational analysis software, which rapidly determines all the distinct,
reasonable shapes each molecule can assume. Both the speed and the thoroughness
of the conformational analysis software distinguish it from commercial chemistry
software and permit the Discovery Engine to handle large data sets.
Hypothesis generation software -- a computer program for analyzing
screening data to identify the requirements a potential drug must satisfy to
bind to this target. Once conformational analysis has been applied to each of
the screened molecules, the Company's proprietary hypothesis generation software
produces computational models that can estimate the biological activity of
chemical structures. These models, called hypotheses, are generated by applying
methods from statistics, information theory, physical chemistry and computer
science to the screening data in order to identify the differences between
active compounds and inactive compounds. The predictive capabilities of the
computational models and the novel algorithms used to produce them distinguish
the Company's hypothesis generator from commercial chemistry software.
Virtual Library Cascader software -- a computer program for conveniently
describing virtual libraries. The Cascader software facilitates the rapid
specification of virtual libraries to the computer. By providing
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databases of reagents and descriptions of reactions to the Cascader, a chemist
can quickly describe large libraries of compounds to the computer. The Cascader
can use the resulting description to construct explicit subsets of the large
virtual library and to present the structures to the chemist and to the Virtual
Library Search software.
Virtual Library Search software -- a computer program for selecting
molecules from the Virtual Library that, when synthesized and screened, will
provide the most information about additional binding requirements. The Virtual
Library search software uses hypotheses to estimate computationally the potency
of prospective compounds in order to increase the likelihood that the chemists
devote their synthesis efforts to compounds that fit the hypotheses and are thus
most likely to bind to the target. By using the computer to test the compounds
in the Virtual Library against the hypotheses, the Discovery Engine can rapidly
identify both putatively active compounds (which satisfy several different
hypotheses) and informative ones (which discriminate among hypotheses).
Searching virtual libraries with billions of compounds has generally not been
possible with commercial chemistry software.
Each cycle of the Discovery Engine refines the computer's assessment of the
best hypothesis for the target in question. After several cycles, the resulting
hypothesis can be used to design highly potent compounds from a broad range of
chemical classes including those not readily amenable to combinatorial synthesis
techniques. By facilitating the design of a variety of potent compounds for
preclinical testing, the Discovery Engine has the potential to increase greatly
the likelihood that at least one of these compounds passes the in vivo and other
downstream hurdles and eventually becomes a commercial drug.
COMBICHEM'S DISCOVERY PROGRAMS
The Company has applied, and intends to continue to apply, its technology
to discover lead compounds for biological targets chosen by its collaborators.
In addition, the Company will select, either jointly with a partner (most likely
a biotechnology company) or on its own, a biological target of interest.
In the first instance, where the Company is working on a target chosen by a
collaborator, the commercial terms are negotiated based on a number of factors,
including the number of targets to be included in the collaboration and the type
of program -- lead generation, lead evolution or lead optimization. Depending
upon the type of program, CombiChem will work on the program for a period of one
to two years. A dedicated project team, funded by the collaborator, consisting
of applications scientists and synthetic, medicinal and analytical chemists will
be assigned. The team composition and size is dependent upon the type of program
and its objectives. To ensure confidentiality, the Company provides target
exclusivity to each of its collaborators, and each team works in a dedicated
laboratory. At the conclusion of the program, assuming its objectives have been
met, the program team will transfer the lead structure(s) to the collaborator.
At this point, the work at CombiChem will be completed, but the partner will
continue to develop the lead candidate. As the collaborator develops the lead
candidate and reaches certain agreed-to objectives, the Company will receive
milestone payments. Eventually, when the lead candidate becomes a marketed drug,
the Company will receive royalties on the sales of the drug.
In the jointly funded programs or the internal programs, the Company will
pay for all or part of the work to be completed and, either jointly or on its
own, will outlicense the lead structures to a partner for the development and
commercialization phases.
Depending upon the data available, the Discovery Engine can be applied to
three types of discovery programs undertaken by the Company: lead generation,
lead evolution and lead optimization. Lead generation uses the UIL to generate
information for the Discovery Engine in situations where little or no prior
information is known about the target. Lead evolution begins with existing
information (either from the collaborator or from the scientific literature)
regarding a lead candidate with the objective of identifying different
structural series that can provide either other development options or an
enhanced patent position. The evolution path may be chosen either as an
outgrowth of a lead optimization program or directly from a collaborator's
established lead candidate series. Lead optimization involves a lead candidate
provided by a collaborator that requires improvement prior to being identified
as a drug development candidate. Using CombiChem's computational drug discovery
approach, initial libraries are constructed around a given
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template. Using a convergent, iterative process, subsequent libraries are
increasingly focused as increased activity (e.g., affinity, selectivity) is
achieved.
Current Collaborative Discovery Programs
The Company's current collaborative discovery programs are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
COMPANY NAME TARGET OR THERAPEUTIC AREA OF FOCUS TYPE OF PROGRAM
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Teijin G-protein coupled receptor Lead evolution(1)
Roche Bioscience Protein-Protein interaction Lead optimization
Enzyme Lead evolution
Receptor Lead optimization
Sumitomo Target implicated in osteoarthritis Lead evolution
and rheumatoid arthritis
ImClone Multiple targets in oncology Lead generation, lead evolution
Elan/Athena Multiple targets in central nervous Lead generation, lead evolution,
system conditions lead optimization
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Started as a lead optimization program.
Internal Discovery Programs
The Company intends to pursue a number of internal programs as a means of
enhancing its ability to generate revenue and profits. The Company has selected
dopamine D-4, a target believed to have a role in schizophrenia, as its first
internally funded program. The Company believes the schizophrenia market has
significant potential, as currently marketed drugs have a number of unwanted
side effects. The Company intends to identify lead candidates for the D-4
receptor (with partial D-2 activity) as well as other future internal targets
and thereafter to outlicense such lead candidates to third parties, retaining a
larger economic interest in these programs. Additional internal programs will be
identified and funded as the Company's resources allow.
COMBICHEM'S COLLABORATIVE ARRANGEMENTS
The Company's business model is to enter into collaborative arrangements
focused on drug discovery efforts to improve the Company's chances of achieving
profitability and to minimize its financing requirements. Commercial terms of a
collaborative arrangement are driven by the number and nature of the targets.
The key components of the commercial terms typically contained in the Company's
collaborations include upfront fees, research support, milestone payments and
royalties.
The Company has the following collaborative arrangements:
Teijin Limited
In March 1996, the Company entered into a collaborative agreement with
Teijin providing for a one-year program on a G-protein coupled receptor target.
In March 1997, the Company and Teijin amended their agreement to extend the
collaboration for an additional year. While the initial focus of the
collaboration was lead optimization, the effort was redirected to lead evolution
during the course of the research. Under the agreement, Teijin made an upfront
payment to CombiChem and agreed to provide research funding and milestone
payments upon the achievement of certain preclinical and clinical milestones.
Teijin also committed internal resources to the discovery effort. Teijin will
make royalty payments on products resulting from the collaboration. CombiChem
retains the rights to the compounds arising under this collaboration in North
and South America; Teijin has rights to these compounds in Asia and Europe with
a right of first negotiation to acquire CombiChem's rights. Under the original
agreement, Teijin has rights to expand or extend the program for up to two
successive one-year terms. Either party may terminate the agreement in the event
of a material
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breach remaining uncured for 60 days. As of September 30, 1997, Teijin had paid
the Company an aggregate of $1.5 million.
Roche Bioscience, a division of Syntex (U.S.A.) Inc.
In October 1996, the Company entered into a collaborative agreement with
Roche Bioscience providing for a broad two-year program to perform research
against three initial targets, including a protein-protein interaction, an
enzyme and a receptor, with an option to add additional targets. Roche
Bioscience can elect one of the approaches -- lead generation, lead evolution or
lead optimization -- for each research program against each collaboration
target. A program may be initiated at any time during the term of the
collaboration, thereby extending the term to allow for completion of each
program. Under the agreement, Roche Bioscience made an upfront payment to
CombiChem and agreed to provide research funding and to make milestone payments
upon the achievement of certain preclinical and clinical milestones. Roche
Bioscience will make royalty payments on worldwide sales of products resulting
from the collaboration. Upon completion of the first year of the agreement,
Roche Bioscience may terminate the collaboration at any time upon six months'
prior written notice. Certain special conditions could also allow Roche
Bioscience to terminate with 45 days' prior written notice. As of September 30,
1997, Roche Bioscience had paid the Company an aggregate of $4.0 million.
Sumitomo Pharmaceuticals Co., Ltd.
In August 1997, the Company entered into a collaborative agreement with
Sumitomo providing for a two-year lead evolution program on a target that is
believed to play a fundamental role in osteoarthritis and rheumatoid arthritis.
Under the agreement, Sumitomo made an upfront payment and agreed to provide
research funding and milestone payments upon the achievement of certain
preclinical and clinical milestones. Sumitomo will make royalty payments on
worldwide sales of products resulting from the collaboration. Sumitomo may
extend the research period for up to four successive six-month periods upon
mutual agreement. The agreement may be terminated by either party 90 days
following an uncured material breach. As of September 30, 1997, Sumitomo had
paid the Company an aggregate of $3.3 million.
ImClone Systems Incorporated
In October 1997, the Company entered into a collaborative agreement with
ImClone providing for a two-year program to identify and characterize novel
small molecule inhibitors to multiple targets for development in oncology. The
agreement provides for ImClone's access to the Company's Universal Informer
Library and Virtual Library under the supervision of the research management
committee composed of representatives of the Company and ImClone. Under the
terms of the agreement, ImClone will provide the Company with research support
payments, milestone payments upon the achievement of certain program objectives
and royalties on worldwide product sales of therapeutic products that may arise
out of the collaboration. The agreement may be terminated by either party 90
days following an uncured material breach or by ImClone within 30 days prior to
the one-year anniversary by providing 90 days' prior written notice. In
connection with the collaborative agreement, ImClone made an equity investment
in the Company.
Athena Neurosciences, Inc., a wholly owned subsidiary of Elan Corporation, plc
In October 1997, the Company entered into a collaborative agreement with
Athena Neurosciences, Inc., a wholly owned subsidiary of Elan Corporation, plc
providing for a three-year program to discover novel therapeutic compounds for
treatment of central nervous system conditions. The agreement provides for
Elan/Athena's access to the Universal Informer Library as deemed necessary by
the research management committee composed of Elan/Athena and CombiChem
representatives. Under the agreement, Elan/Athena will provide the Company with
upfront and research support payments, as well as milestone payments upon the
achievement of pre-determined objectives. Elan/Athena will also make royalty
payments on worldwide sales of products resulting from the collaboration. The
agreement may be terminated by either party 90 days following an uncured
material breach or by Elan/Athena after the one-year anniversary upon 90 days
prior
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written notice. In connection with the collaborative agreement, Elan
International Services Ltd., an affiliate of Elan/Athena, made an equity
investment in the Company.
COMPETITION
Many organizations are actively attempting to identify, optimize and
generate lead compounds for potential pharmaceutical development. The Company
competes with the research departments of pharmaceutical companies,
biotechnology companies, combinatorial chemistry companies and research and
academic institutions as well as other computationally based drug discovery
companies. Many of these competitors have greater financial and human resources
and more experience in research and development than the Company. Historically,
large pharmaceutical companies have maintained close control over their research
activities, including the synthesis, screening and optimization of chemical
compounds. Many of these companies, which represent one of the largest potential
markets for CombiChem's products and services, are internally developing
combinatorial and computational approaches and other methodologies to improve
productivity, including major investments in robotics technology to permit the
automated parallel synthesis of compounds. In addition, these companies may
already have large collections of compounds previously synthesized or ordered
from chemical supply catalogs or other sources against which they may screen new
targets. Other sources of compounds include compounds extracted from natural
products, such as plants and microorganisms, and compounds created using
rational drug design. Academic institutions, governmental agencies and other
research organizations are also conducting research in areas in which the
Company is working, either on their own or through collaborative efforts. The
Company anticipates that it will face increased competition in the future as new
companies enter the market and advanced technologies become available. The
Company's processes may be rendered obsolete or uneconomical by technological
advances or entirely different approaches developed by one or more of the
Company's competitors. The existing approaches of the Company's competitors or
new approaches or technology developed by the Company's competitors may be more
effective than those developed by the Company.
PATENTS AND PROPRIETARY INFORMATION
The Company's success will depend in large part on its own, its licensees'
and its licensors' ability to obtain and defend patents for each party's
respective technologies and the compounds and other products, if any, resulting
from the application of such technologies, maintain trade secrets and operate
without infringing upon the proprietary rights of others, both in the United
States and in foreign countries. The patent positions of pharmaceutical and
biotechnology companies, including the Company, are uncertain and involve
complex legal and factual questions for which important legal principles are
largely unresolved. The Company has pending United States and foreign patent
applications relating to various aspects of its technology, certain systems,
materials and methods used in screening compounds and the libraries or compounds
contained therein. These patent applications are either owned by the Company or
rights under them are licensed to the Company. To date, none of the patent
applications owned by the Company have been issued. To the extent that any
foreign patent application filed in the European Patent Office or the Japanese
Patent Office issues as a patent, a challenge to the validity of such patent may
be presented in an opposition proceeding. There can be no assurance that patents
will issue as a result of any such pending applications or that, if issued, such
patents will be sufficiently broad to afford protection against competitors with
similar technologies. The Company is aware of two United States patents issued
to a third party that claim proprietary rights in a computer-based system and
method for automatically generating chemical compounds. Although the Company
believes that its current activities do not infringe these patents, there can be
no assurance that the Company's belief would be affirmed in any litigation over
the patents or that the Company's future technological developments would be
outside the scope of these patents. Further, there can be no assurance that the
third party will not seek to assert such patent rights against the Company,
which would result in significant legal costs and require substantial management
resources, and there can be no assurance that the Company would be able to
obtain a license from the third party, if required, on commercially reasonable
terms, if at all. The inability of the Company either to demonstrate
non-infringement of these and other current and future patents, whether issued
in the United States or overseas, or to obtain the appropriate licenses, would
have a material adverse effect on the Company's business, financial condition
and operations. Moreover, there can be no assurance
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that the Company or its customers will be able to obtain patent protection for
lead compounds or pharmaceutical products based upon the Company's or such
customers' technologies. There can be no assurance that any patents issued to
the Company or its collaborative partners, or for which the Company has license
rights, will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company. To the
extent that the Company or its consultants or collaborators use intellectual
property owned by others in their work for the Company, disputes may also arise
as to the rights in related or resulting know-how and inventions. Litigation may
be necessary to enforce the Company's patent and license rights or to determine
the scope and validity of others' proprietary rights. Any such litigation,
whether or not the outcome thereof is favorable to the Company, could result in
substantial cost to and diversion of effort by the Company. Further, United
States patents do not provide any remedies for infringement that occurred before
the patent is issued. The commercial success of the Company will also depend
upon successfully avoiding the infringement of current and future patents issued
to competitors and upon maintaining the technology licenses upon which certain
of the Company's current products are, or any future products under development
might be, based. If competitors of the Company prepare and file patent
applications in the United States that claim inventions also claimed by the
Company or its collaborators, the Company or its collaborators may have to
participate in interference proceedings declared by the PTO to determine the
priority of invention, which could result in substantial cost to the Company,
even if the outcome is favorable to the Company. An adverse outcome could
subject the Company to significant liabilities to third parties and require the
Company to license disputed rights from third parties or cease using the
technology.
A United States patent application is maintained under conditions of
confidentiality while the application is pending in the PTO, so that the Company
cannot determine the inventions being claimed in pending patent applications
filed by its competitors in the PTO. A number of pharmaceutical and
biotechnology companies and research and academic institutions have developed
technologies, filed patent applications or received patents on various
technologies that may be related to the Company's business. Some of these
technologies, applications or patents may conflict with the Company's
technologies or patent applications. Such conflict could limit the scope of the
patents, if any, that the Company may be able to obtain, or result in the denial
of the Company's patent applications. In addition, there can be no assurance
that the Company would be able to obtain licenses to patents held by third
parties that may cover the Company's activities at a reasonable cost, if at all,
or that the Company would be able to develop or obtain any alternative
technologies. The Company currently has certain licenses from third parties and
in the future may require additional licenses from other parties in order to
refine its Discovery Engine further and to allow its collaborators to develop,
manufacture and market commercially viable products effectively. There can be no
assurance that (i) such licenses will be obtainable on commercially reasonable
terms, if at all; (ii) any patents underlying such licenses will be valid and
enforceable; or (iii) the proprietary nature of any patented technology
underlying such licenses will remain proprietary. The Company relies
substantially on certain technologies that are not patentable or proprietary and
are therefore available to the Company's competitors. The Company also relies on
certain proprietary trade secrets and know-how that are not patentable. Although
the Company has taken steps to protect its unpatented trade secrets and
know-how, in part through the use of confidentiality agreements with its
employees, consultants and certain of its contractors, there can be no assurance
that (i) these agreements will not be breached, (ii) the Company would have
adequate remedies for any breach, or (iii) the Company's trade secrets will not
otherwise become known or be independently developed or discovered by
competitors. Failure by the Company to protect all or part of its patents, trade
secrets and know-how could have a material adverse effect on the Company's
business, financial condition and results of operations.
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products that may be developed by a customer or collaborator of
the Company or, in the event the Company decides to develop a drug beyond the
preclinical phase, by the Company. The nature and the extent to which such
regulation may apply to the Company's customers will vary depending on the
nature of any such pharmaceutical products. Virtually all pharmaceutical
products developed by the Company's customers will require regulatory approval
by governmental agencies prior to commercialization. In particular, human
pharmaceutical therapeutic products are subject to rigorous
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preclinical and clinical testing and other approval procedures established by
the FDA and by foreign regulatory authorities. Various federal and, in some
cases, state statutes and regulations also govern or influence, among other
things, the testing, manufacture, safety, efficacy, labeling, storage, record
keeping, approval, advertising and promotion of such products. Non-compliance
with applicable requirements can result in fines, warning letters, recall or
seizure of products, clinical study holds or delays, total or partial suspension
of production, refusal of the government to grant approvals, and civil and
criminal penalties. The process of obtaining these approvals and the subsequent
compliance with appropriate federal and foreign statutes and regulations are
time-consuming and require the expenditure of substantial resources. Generally,
in order to gain FDA approval, a company first must conduct preclinical studies
in the laboratory and in animal models to gain preliminary information on a
compound's efficacy and to identify any safety problems. Preclinical studies
must be conducted by laboratories that comply with FDA regulations regarding
Good Laboratory Practices. The results of these studies are submitted as a part
of an IND that the FDA must review before human clinical trials of an
investigational drug can begin. In order to commercialize any products, the
Company or its customer will be required to sponsor and file an IND and will be
responsible for initiating and overseeing the clinical studies to demonstrate
the safety and efficacy that are necessary to obtain FDA and foreign regulatory
authority approval of any such products. Clinical trials are normally done in
three phases and generally take two to five years but may take longer to
complete. After completion of clinical trials of a new product, FDA and foreign
regulatory authority marketing approval must be obtained. If the product is
classified as a new drug, the Company or its customer will be required to file
an NDA and receive approval before commercial marketing of the drug. The testing
and approval processes require substantial time and effort, and there can be no
assurance that any approval will be granted on a timely basis, if at all. NDAs
submitted to the FDA can take, on average, two to five years to obtain approval.
If questions arise during the FDA review process, approval can take more than
five years. Even if FDA regulatory clearances are obtained, a marketed product
is still subject to continual review, and later discovery of previously unknown
problems or failure to comply with the applicable regulatory requirements may
result in restrictions on the marketing of a product or withdrawal of the
product from the market, as well as possible civil or criminal sanctions.
Domestic manufacturing facilities of the Company or its customers are subject to
bannial inspections by the FDA and must comply with the FDA's current Good
Manufacturing Practices regulations. To comply with such regulations, a
manufacturer must spend funds, time and effort in the areas of production and
quality control to ensure full technical compliance. The FDA stringently applies
regulatory standards for manufacturing. For marketing outside the United States,
the Company or its customer will also be subject to foreign regulatory
requirements governing human clinical trials and marketing approval for
pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.
The research and development processes of the Company involve the
controlled use of hazardous materials. The Company is subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. Although the Company
believes that its activities currently comply with the standards prescribed by
such laws and regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result, and any
such liability could exceed the resources of the Company. In addition, there can
be no assurance that the Company will not be required to incur significant costs
to comply with environmental laws and regulations in the future. The occurrence
of any such event could have a material adverse effect on the Company's
business, financial condition and results of operations.
MARKETING
The Company markets its products directly to customers through
participation in trade conferences and seminars and publications in scientific
and trade journals.
To date, the Company has sold its product offering to its collaborative
partners primarily through the efforts of its senior management and dedicated
business development professionals. In addition, the Company
36
<PAGE> 38
utilizes outside consultants to supplement its business development activities
in targeted geographies or industries.
FACILITIES
The Company currently leases and occupies approximately 34,000 square feet
of laboratory and office space in San Diego, California. The Company also leases
office space in Palo Alto, California at two separate locations and under two
separate leases; one lease is for approximately 4,500 square feet and the other
is for approximately 6,000 square feet. The Company is currently planning to
move its Palo Alto operations from the smaller location to the larger location
and to sublet the smaller space. The San Diego lease expires in May 2006; the
Palo Alto lease for 4,500 square feet expires in October 1998; and the Palo Alto
lease for 6,000 square feet expires in October 2002.
EMPLOYEES
As of September 30, 1997, the Company had 56 full-time employees, 31 of
whom have Ph.D. degrees. Of these employees, 42 were engaged in research and
development and 14 were engaged in marketing and general administration. None of
the Company's employees is covered by collective bargaining agreements.
Management considers its relations with its employees to be good.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
SCIENTIFIC ADVISORY BOARD
The Company has formed a Scientific Advisory Board ("SAB"), which consists
of eight individuals with demonstrated expertise in the fields of molecular
biology, medicinal and synthetic chemistry, computer science and biochemistry.
Members of the SAB review the Company's research, development and
operations activities and are available for consultation with the Company's
management and staff relating to their respective areas of expertise. The SAB
holds regular meetings. The Scientific Advisors are reimbursed for their
expenses in connection with their service and are paid for attending meetings.
In addition, the Scientific Advisors either hold options to purchase Common
Stock or own varying amounts of Common Stock of the Company that were purchased
pursuant to their individual consulting agreements with the Company. The
Scientific Advisors are expected to devote only a small portion of their time to
the business of the Company.
The Scientific Advisors are all employed by or have consulting agreements
with entities other than the Company. Each Scientific Advisor has entered into a
consulting agreement with the Company that contains confidentiality and
nondisclosure provisions that prohibit the disclosure of confidential
information to anyone outside the Company. Also, the consulting agreements
contain exclusivity provisions restricting the Scientific Advisors from
providing service to or investing in any competitor of the Company without the
Company's consent. All inventions, discoveries or other intellectual property
that comes to the attention of each Scientific Advisor while performing services
under a consulting agreement with the Company will be assigned to the Company.
The current members of the SAB are as follows:
Sydney Brenner, Ph.D. Dr. Brenner is the President and Director of Science
at The Molecular Sciences Institute, Inc. This follows an academic career at the
University of Cambridge, UK, where he pioneered many of the developments in
modern biology and molecular biology.
Dennis Curran, Ph.D. Dr. Curran is the Distinguished Service Professor of
Chemistry and the Bayer Professor of Chemistry at The University of Pittsburgh.
His research focus is fluorous chemistry.
Samuel J. Danishefsky, Ph.D. Dr. Danishefsky holds a Chair in Chemistry at
Columbia University and the Kettering Chair at The Sloan-Kettering Institute for
Cancer Research. Following the award of his Ph.D. by Harvard University in 1962,
he has had a distinguished career in synthetic and medicinal chemistry.
37
<PAGE> 39
Kim Janda, Ph.D. Dr. Janda is the Ely R. Callaway, Jr., Professor of
Chemistry at The Scripps Research Institute ("TSRI"), Department of Chemistry
and holds a joint appointment with The Skaggs Institute for Chemical Biology at
TSRI. Dr. Janda is widely recognized for his work in combinatorial chemistry and
biochemistry. Dr. Janda received a B.S. in Clinical Chemistry from the
University of South Florida, a M.S. in Organic Chemistry from the University of
Arizona and a Ph.D. in Organic Chemistry with a minor in Medicinal Chemistry
from the University of Arizona.
William Jorgensen, Ph.D. Dr. Jorgensen is the Whitehead Professor of
Chemistry at Yale University, where he has been since 1990. Dr. Jorgensen is
widely known for his work in organic and computational chemistry. He received a
B.A. in Chemistry from Princeton and a Ph.D. in Chemical Physics from Harvard
University.
Richard Lathrop, Ph.D. Dr. Lathrop is an Assistant Professor at the
University of California, Irvine in the Department of Information and Computer
Science, where he has been since July 1995. Dr. Lathrop is widely recognized for
his work in the area of advanced computational techniques with applications in
the domain of molecular biology. Dr. Lathrop received a B.A. in Mathematics from
Reed College in Portland, and an M.S. in Computer Science and a Ph.D. in
Artificial Intelligence from the Massachusetts Institute of Technology. His
research interests are focused on artificial intelligence and advanced
computational techniques.
William Scott, Ph.D. Dr. Scott received a Ph.D. in Biochemistry in 1967
from the California Institute of Technology. His subsequent career has spanned
both academia at Rockefeller University, and industry with Bristol-Myers Squibb.
Dr. Scott is also a Director of the Company. See "Management -- Executive
Officers, Key Employees and Directors."
Chi-Huey Wong, Ph.D. Dr. Wong is a Professor and Ernest W. Hahn Chair in
Chemistry at TSRI, where he has been since 1989, and holds a joint appointment
with The Skaggs Institute for Chemical Biology at TSRI. Dr. Wong has published
numerous papers in the area of Bioorganic and Synthetic Chemistry. Dr. Wong
received a B.S. in Chemistry and Biochemistry and an M.S. in Biochemistry from
National Taiwan University, received a Ph.D. in Organic Chemistry from the
Massachusetts Institute of Technology and was a Postdoctoral Fellow in Chemistry
at Harvard University.
38
<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of the Company as of
September 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Pierre R. Lamond(1)(3).................... 67 Chairman of the Board and Director
Vicente Anido, Jr., Ph.D.(1).............. 44 President, Chief Executive Officer and
Director
Peter L. Myers, Ph.D...................... 53 Vice President, Chief Scientific Officer,
Chief Operating Officer and Director
Karin Eastham............................. 47 Vice President, Finance and Administration
and Chief Financial Officer
Klaus Gubernator, Ph.D. .................. 44 Vice President, Special Projects
Lee R. McCracken.......................... 39 Vice President, Business Development
John Saunders, Ph.D....................... 49 Vice President, Medicinal Chemistry
Steven L. Teig............................ 36 Vice President, Advanced Technology
Philippe O. Chambon, M.D., Ph.D.(1)(2).... 39 Director
Arthur Reidel(3).......................... 46 Director
William Scott, Ph.D.(2)................... 57 Director
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
Pierre R. Lamond. Mr. Lamond has served as Chairman of the Board and a
Director of the Company since May 1995. Mr. Lamond is a General Partner of
Sequoia Capital, a venture capital limited partnership with over $500 million
under management. Prior to joining Sequoia Capital in 1981, Mr. Lamond was a
Vice President and Technical Director of National Semiconductor Corporation
("National Semiconductor") from 1976 to 1981. He began his career in 1957 at
Transitron Corporation and joined Fairchild Semiconductor Company in 1961. In
1967, he was one of the co-founders of National Semiconductor where he managed
the semiconductor division until 1974. From 1974 through 1975, he was President
of Coherent, Inc., a laser company. He served as President of Advent, an early
pioneer of projection television from 1975 through 1976. Mr. Lamond is Chairman
of Cypress Semiconductor Corporation and Vitesse Semiconductor Corporation,
Director of CKS Group, and a director of a number of private companies.
Vicente Anido, Jr., Ph.D. Dr. Anido has served as President and Chief
Executive Officer and as a Director of the Company since joining the Company in
March 1996. Prior to that, Dr. Anido served as President of the Americas Region
at Allergan, Inc. from June 1993, where he was responsible for that company's
commercial operations for North and South America with approximately $500
million in revenue. Prior to that, Dr. Anido spent almost 18 years at Marion
Laboratories and Marion Merrell Dow, Inc. and served as Vice President, Business
Management of its U.S. Prescription Products Division from 1991 until June 1993.
Dr. Anido holds a B.S. in Pharmacy from West Virginia University, an M.S. in
Pharmaceutical Sciences from West Virginia University and a Ph.D. in Pharmacy
Administration from the University of Missouri, Kansas City.
Peter L. Myers, Ph.D. Dr. Myers has served as a Director, Vice President
and Chief Scientific Officer of the Company since joining the Company in March
1995. Dr. Myers has also served as Chief Operating Officer of the Company since
September 1995 and served as the acting Chief Executive Officer from September
1995 to March 1996. Prior to joining the Company, Dr. Myers served as Vice
President, Drug Discovery and Development at Onyx Pharmaceuticals Inc. from
November 1993 through March 1995, where he was responsible for all aspects of
drug discovery and development leading to potential novel classes of anti-cancer
drugs. Prior to that, Dr. Myers served as Vice President, Chemistry Research of
Glaxo Inc. Research Institute
39
<PAGE> 41
from January 1991 through December 1993. Dr. Myers holds a B.S. in Chemistry and
a Ph.D. in Organic Chemistry from Leeds University.
Karin Eastham. Ms. Eastham joined the Company as Vice President, Finance
and Administration and Chief Financial Officer in April 1997. Prior to joining
the Company, Ms. Eastham served as Vice President, Finance and Administration
and Chief Financial Officer of Cytel Corporation, a drug research and
development company, from October 1992 through April 1997. Prior to that, Ms.
Eastham was Vice President, Finance and Administration of Pritsker Corporation,
a simulation-based computer software company, from May 1990 through October
1992. Ms. Eastham received a B.S. in Accounting and an M.B.A. from Indiana
University. She is a Certified Public Accountant.
Klaus Gubernator, Ph.D. Dr. Gubernator joined the Company in August 1997 as
Vice President, Special Projects. Prior to joining the Company, he served as
Research Section Head in Pharmaceutical Research at F. Hoffmann-La Roche Ltd. in
Basel, Switzerland from 1987 to 1997, contributing to cardiovascular and
antibacterial projects as well as developing structure-based design and
bioinformatics technologies. Dr. Gubernator received his Ph.D. degree in
Chemistry from the University of Heidelberg.
Lee R. McCracken. Mr. McCracken has served as Vice President, Business
Development since joining the Company in May 1996. Prior to joining the Company,
Mr. McCracken served as Vice President, Business Development at Watson
Laboratories, the operating subsidiary of Watson Pharmaceuticals, from January
1996 through May 1996. Prior to that, Mr. McCracken served as Managing Director
of Pacific Pharma and as Director, Business Development, for the Americas Region
at Allergan, Inc. from May 1992 through December 1995. Prior to entering the
pharmaceutical industry, Mr. McCracken was a venture capitalist with 3i Capital
and Union Venture Corporation. Mr. McCracken received a B.S. in Marketing from
Santa Clara University, an M.S. in Computer Science from the University of
Dayton and an M.B.A. from The Anderson School at UCLA.
John Saunders, Ph.D. Dr. Saunders joined the Company in October 1995 as
Vice President, Medicinal Chemistry. Prior to joining the Company, Dr. Saunders
served as Head of Medicinal Chemistry II from August 1989 through September 1995
and also as Head of the Antiviral Research Management Committee from July 1995
through September 1995 at Glaxo-Wellcome, plc. Dr. Saunders received a first
class honors degree in Chemistry from Newcastle University in England and a
Ph.D. from Cambridge University.
Steven L. Teig. Mr. Teig has served as Vice President, Advanced Technology
since February 1997 and previously served as Vice President, Design Technology
from July 1995. Prior to joining the Company, Mr. Teig co-founded BioCAD Corp.,
a commercial developer of drug discovery software for medicinal chemists, in
June 1989 and served as its Chief Technical Officer until its merger with
Molecular Simulations, Inc. ("MSI"). Thereafter, Mr. Teig served as President
and Chief Technical Officer of Entropix Corporation, a subsidiary of MSI, from
August 1994 through July 1995. Prior to pursuing drug discovery technology, Mr.
Teig co-founded Tangent Systems Corporation, a developer of integrated circuit
design software, which was subsequently acquired by Cadence Design Systems, Inc.
Mr. Teig holds a B.S.E. in Electrical Engineering and Computer Science from
Princeton University.
Philippe O. Chambon, M.D., Ph.D. Dr. Chambon is a General Partner of the
Sprout Group. He joined Sprout in May 1995. From May 1993 to April 1995, Dr.
Chambon served as Manager in the Healthcare Practice of The Boston Consulting
Group, a leading management consulting firm. Previously, Dr. Chambon was an
executive with Sandoz Pharmaceuticals Corporation, a leading pharmaceutical
company, from September 1987 to April 1993. In his last capacity there, he was
the Executive Director of New Product Management. He is currently a director of
Transcend Therapeutics and of several private companies. Dr. Chambon received an
M.D. (with honors) and Ph.D. from the University of Paris and an M.B.A. from
Columbia University.
Arthur Reidel. Mr. Reidel has served as a director of the Company since
September 1997. He currently serves as President, Chief Executive Officer and
Chairman of the Board of Pharsight Corporation, a privately held software
corporation, a position he has held since April 1996, and as a director from
April 1995. Prior to that, he was a private investor/consultant from April 1995
to March 1996. From October 1994 to March 1995,
40
<PAGE> 42
he served as Vice President, Business Development of Viewlogic Systems, Inc., a
publicly held software firm. Mr. Reidel has served as a director of MacNeil
Schwendler from December 1993 and as a director of Formation Systems, Inc. from
1996 to the present. Mr. Reidel has also served as President and Chief Executive
Officer, Sunrise Test Systems, Inc., a privately held software firm, from
December 1992 to March 1994 (Viewlogic Systems, Inc. acquired Sunrise Test
Systems, Inc. in September 1994), and Vice President of Weitek Corporation from
July 1991 to December 1992. Mr. Reidel received an B.S. in mathematics from
Massachusetts Institute of Technology.
William Scott, Ph.D. Dr. Scott has served as a director of the Company
since January 1997. Since March 1997, Dr. Scott has served as the Chief
Executive Officer of Physiome Sciences, Inc. From 1983 until December 1996, Dr.
Scott served in various executive positions with Bristol-Myers Squibb
Pharmaceutical Research Institute and as its Senior Vice President, Drug
Discovery Research since 1991. Dr. Scott received a B.S. in Chemistry from the
University of Illinois and a Ph.D. in Biochemistry from the California Institute
of Technology and was an NIH Postdoctoral Fellow at The Rockefeller University.
Dr. Scott serves on the Board of Directors of a private company.
Members of the Board currently hold office and serve until the next annual
meeting of the stockholders of the Company or until their respective successors
have been elected. The Board is currently comprised of six directors. Under the
Company's Bylaws, as amended, beginning with the next annual meeting of
stockholders the Company's Board will be classified into three classes of
directors serving staggered three-year terms, with one class of directors to be
elected at each annual meeting of stockholders. The classification of directors
has the effect of making it more difficult to change the composition of the
Board. See "Description of Capital Stock -- Possible Anti-Takeover Effect of
Certain Charter Provisions."
All executive officers are appointed annually by and serve at the
discretion of the Board. All of the Company's executive officers are employed by
the Company at will.
Pursuant to the Company's 1997 Stock Incentive Plan, which was adopted by
the Board and approved by the Company's stockholders in October, 1997, directors
who are not officers or employees of the Company will receive periodic option
grants beginning with the next annual meeting of stockholders. See "-- Benefit
Plans."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has a standing Compensation Committee currently composed of Dr.
Chambon and Dr. Scott. The Compensation Committee reviews and acts on matters
relating to compensation levels and benefit plans for executive officers and key
employees of the Company, including salary and stock options. The Compensation
Committee is also responsible for granting stock awards, stock options and stock
appreciation rights and other awards to be made under the Company's existing
incentive compensation plans. The Company also has a standing Audit Committee
composed of Mr. Lamond and Mr. Reidel. The Audit Committee assists in selecting
the Company's independent auditors and in designating services to be performed
by, and maintaining effective communication with, those auditors. The Company
also has a standing Executive Committee currently composed of Mr. Lamond, Dr.
Anido and Dr. Chambon. The Executive Committee has the authority to exercise all
powers of the Board of Directors not designated to another committee when the
Board of Directors is not in session.
41
<PAGE> 43
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth the aggregate compensation earned by the
Company's President and Chief Executive Officer (both current and former) and
each of the other four most highly compensated executive officers whose salary
and bonus for 1996 exceeded $100,000 (the "Named Executive Officers") for
services rendered in all capacities to the Company for the year ended December
31, 1996:
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(2) BONUS(3) COMPENSATION OPTIONS/SARS(#) COMPENSATION
- ---------------------------------- --------- -------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Vicente Anido, Jr., Ph.D.(4)
President, Chief Executive
Officer and Director............ $ 200,417 $55,226 $ -- 422,417 $ --
Peter L. Myers, Ph.D.(5)
Chief Scientific Officer
and Chief Operating Officer,
Acting Chief Executive
Officer and Director............ 225,233 43,050 -- -- --
John Saunders, Ph.D.
Vice President,
Medical Chemistry............... 145,000 23,200 27,125(6) -- --
Lee R. McCracken(7)
Vice President,
Business Development............ 101,740 16,917 -- 72,500 --
Steven L. Teig
Vice President,
Advanced Technology............. 137,025 21,924 -- -- --
Lynn Caporale, Ph.D.(8)
Vice President, Strategic
Development..................... 144,834 22,000 -- -- 130,572(9)
</TABLE>
- ---------------
(1) Pursuant to Instruction to Item 402(b) of Regulation S-K promulgated by the
Securities and Exchange Commission (the "Commission"), information with
respect to fiscal years prior to 1996 has not been included as the Company
was not a reporting company pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
information has not been previously reported to the Commission in response
to a filing requirement.
(2) Includes amounts deferred pursuant to the Company's 401(k) Plan.
(3) Includes cash payments for bonuses earned by the Named Executive Officers
during 1996.
(4) Dr. Anido was hired in March 1996.
(5) Dr. Myers served as the Company's Chief Executive Officer from August 1995
until March 1996.
(6) Payments to cover relocation expenses.
(7) Mr. McCracken was hired in May 1996.
(8) Dr. Caporale resigned from the Company in November 1996.
(9) Represents payments of $27,572 made in 1996 for accrued vacation and
severance benefits, and payments of $103,000 made in 1997 for severance
payments accrued in 1996. See "-- Employment Arrangements and Change of
Control Arrangements."
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<PAGE> 44
Stock Options
The following table sets forth information concerning stock option grants
made to each of the Named Executive Officers for the year ended December 31,
1996. The Company granted no stock appreciation rights ("SARs") to Named
Executive Officers during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERMS(3)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE(2) DATE 5% 10%
- ---------------------------- ------------ ------------ ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Vicente Anido, Jr., Ph.D.... 422,417 79.5% $ 0.30 03/13/06 $208,717 $343,050
Peter L. Myers, Ph.D........ -- -- -- -- -- --
John Saunders, Ph.D......... -- -- -- -- -- --
Lee R. McCracken............ 72,500 13.6 0.30 05/08/06 35,822 58,878
Steven L. Teig.............. -- -- -- -- -- --
Lynn Caporale, Ph.D......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The grant dates for these options are as follows: March 14, 1996 for Dr.
Anido's option and May 9, 1996 for Mr. McCracken's option. Each option has a
maximum term of 10 years measured from the grant date, subject to earlier
termination upon the optionee's cessation of service with the Company. Each
option is immediately exercisable for all the option shares; however, any
shares purchased under the option will be subject to repurchase by the
Company, at the option exercise price paid per share, should the optionee
leave the Company prior to vesting in the shares. Dr. Anido's option was
fully vested with respect to 10% of the option shares on the grant date,
another 15% of the option shares vested upon his completion of one year of
service measured from the grant date, and the balance of the option shares
vest in a series of equal monthly installments over Dr. Anido's 36-month
period of service measured from the first anniversary of the grant date. The
shares subject to Mr. McCracken's option vest as follows: 25% upon his
completion of one year of service measured from the grant date and the
balance in a series of 36 successive equal monthly installments over his
continued period of service thereafter. The options were granted under the
1995 Stock Option/Stock Issuance Plan and will be incorporated into the new
1997 Stock Option Plan on the effective date of the Offering, but will
continue to be governed by their existing terms. See "Benefit Plans -- 1997
Stock Incentive Plan."
(2) The exercise price per share of options granted represented the fair market
value of the underlying shares of Common Stock on the dates the respective
options were granted as determined by the Board, considering all relevant
factors. The exercise price may be paid in cash or in shares of Common Stock
valued at fair market value on the exercise date or a combination of cash
and shares or any other form of consideration approved by the Board. After
the effective date of the Registration Statement of which this Prospectus is
a part, the fair market value of shares of Common Stock will be determined
in accordance with certain provisions of the Company's 1995 Stock
Option/Stock Issuance Plan based on the closing selling price per share of
Common Stock on the date in question on the primary exchange or national
market system on which the Company's common stock is listed or reported. If
shares of the Common Stock are not listed or admitted to trading 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.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Commission. The price used for computing this
appreciation is the exercise price of the options, not the price of Common
Stock in this offering. There is no assurance provided to any executive
officer or any other holder of the Company's securities that the actual
stock price appreciation over the 10-year option term will be at the assumed
5% or 10% levels or at any other defined level.
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<PAGE> 45
Option Exercises and Holdings
The following table provides information concerning option exercises during
1996 by the Named Executive Officers and the value of unexercised options held
by each of the Named Executive Officers as of December 31, 1996. No SARs were
exercised during 1996 or outstanding as of December 31, 1996.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1996(#) AT DECEMBER 31, 1996(3)
ACQUIRED ON VALUE ------------------------------ ------------------------------
NAME EXERCISE(#) REALIZED(1) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
- ----------------------- ----------- ----------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vicente Anido, Jr.,
Ph.D................. -- $-- 422,417 -- $ 42,242 $--
Peter L. Myers,
Ph.D................. -- -- -- -- -- --
John Saunders, Ph.D.... -- -- -- -- -- --
Lee R. McCracken....... 72,500 -- -- -- -- --
Steven L. Teig......... -- -- -- -- -- --
Lynn Caporale, Ph.D.... -- -- -- -- -- --
</TABLE>
- ---------------
(1) "Value realized" is calculated on the basis of the fair market value of the
Common Stock on the date of exercise minus the exercise price and does not
necessarily indicate that the optionee sold such stock.
(2) The options are immediately exercisable, but any shares purchased thereunder
will be subject to repurchase by the Company, at the original option
exercise price paid per share, should Dr. Anido leave the Company prior to
vesting in the shares. As of October 15, 1997, Dr. Anido had vested in
167,204 of those shares.
(3) "Value" is defined as fair market price of the Common Stock at fiscal
year-end ($0.40) less exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, the Compensation Committee of the
Company's Board established the levels of compensation for the Company's
executive officers. The current members of the Company's Compensation Committee
are Dr. Chambon and Dr. Scott. See "Certain Transactions."
EMPLOYMENT ARRANGEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
In March 1996, the Company and Dr. Anido entered into an agreement whereby
Dr. Anido is employed as President and Chief Executive Officer of the Company.
Pursuant to his agreement, Dr. Anido receives an annual base salary of $260,000,
which is reviewed annually by the Board of Directors, and is eligible for a
bonus of up to 25% of his annual base salary to be awarded at the discretion of
the Board of Directors. In the event the Company terminates Dr. Anido's
employment without "cause," Dr. Anido will be entitled to receive an aggregate
severance benefit of 12 months of his base salary and benefits less amounts
received by Dr. Anido from other full-time employment during that period. In
addition, pursuant to his employment agreement Dr. Anido received options to
purchase 420,000 shares of Common Stock with an exercise price of $0.30 per
share. The shares subject to the option vest over Dr. Anido's four-year period
of service with the Company measured from the option grant date. Dr. Anido's
employment agreement also provides Dr. Anido with a right to maintain his pro
rata interest in the Company by purchasing new securities issued in a financing
other than a public offering, subject to certain exceptions.
In March 1995, the Company and Dr. Myers entered into an agreement whereby
Dr. Myers is employed as Chief Scientific Officer and Chief Operating Officer of
the Company. Pursuant to his agreement, Dr. Myers (i) received a signing bonus
of $26,250 towards the purchase of Company stock, (ii) receives an annual base
salary of $210,000, which is reviewed annually by the President and Chief
Executive Officer, and (iii) is eligible for a bonus of up to 25% of his annual
base salary to be awarded at the discretion of the Board of
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<PAGE> 46
Directors. In connection with the employment agreement, Dr. Myers was provided a
home loan. In the event the Company terminates Dr. Myers' employment without
"cause," Dr. Myers will be entitled to receive an aggregate severance benefit of
nine months of his base salary and benefits, unless he obtains full-time
employment prior to the end of that period, and nine months accelerated vesting
to be applied to any vesting requirements under any stock option or stock
purchase agreements outstanding between Dr. Myers and the Company at the time of
his termination without cause. Simultaneous with the execution of Dr. Myers'
employment agreement, the Company and Dr. Myers entered into a Stock Purchase
Agreement whereby Dr. Myers purchased 87,500 shares of Common Stock at $0.30 per
share. Those shares vest over Dr. Myers' four-year period of service with the
Company measured from the option grant date.
In March 1997, the Company and Ms. Eastham entered into an agreement
whereby she is employed as Vice President, Finance and Administration and Chief
Financial Officer. Pursuant to her agreement, Ms. Eastham (i) receives an annual
base salary of $186,000, which is reviewed annually by the Chief Executive
Officer and Board of Directors, and (ii) is eligible for a bonus of up to 20% of
her annual base salary to be awarded at the discretion of the Board of
Directors. In the event the Company terminates Ms. Eastham's employment without
"cause" within two years after her date of hire, Ms. Eastham will be entitled to
receive an aggregate severance benefit of her base salary and benefits for six
months, unless she obtains full-time employment prior to the end of that
six-month period. Simultaneous with the execution of Ms. Eastham's employment
agreement, the Company and Ms. Eastham entered into a Stock Option Agreement
granting her an option to purchase 87,500 shares of Common Stock with an
exercise price of $0.40 per share. The shares subject to the option vest over
her four-year period of service with the Company measured from the grant date.
In January 1996, the Company and Dr. Saunders entered into an agreement
whereby Dr. Saunders is employed as Vice President, Medicinal Chemistry of the
Company. Pursuant to his agreement, Dr. Saunders receives an annual base salary
of $145,000, which is reviewed annually by the President and Chief Executive
Officer, and is eligible for a bonus of up to 20% of his annual base salary to
be awarded at the discretion of the Board of Directors. Simultaneous with the
execution of the employment agreement, the Company and Dr. Saunders entered into
a stock option agreement granting him an option to purchase 83,825 shares of the
Company's common stock with an exercise price of $0.248 per share. The shares
subject to that option vest over Dr. Saunders' four-year period of service with
the Company measured from the option grant date.
In May 1996, the Company and Mr. McCracken entered into an agreement
whereby he is employed as Vice President, Business Development of the Company.
Pursuant to his agreement, Mr. McCracken received a signing bonus of $10,000 and
receives an annual base salary of $145,000, which is reviewed annually by the
President and Chief Executive Officer. In addition, Mr. McCracken is eligible
for a bonus of up to 20% of his annual base salary. In the event the Company
terminates Mr. McCracken's employment without "cause," Mr. McCracken will be
entitled to receive an aggregate severance benefit of nine months of his base
salary and benefits. Simultaneous with the execution of Mr. McCracken's
employment agreement, the Company and Mr. McCracken entered into a stock option
agreement granting Mr. McCracken an option to purchase 72,500 shares of Common
Stock with an exercise price of $0.30 per share. The shares subject to the
option vest over Mr. McCracken's four-year period of service measured from the
option grant date.
In July 1995, the Company and Mr. Teig entered into an agreement whereby he
is employed as Vice President of the Company. Pursuant to his agreement, Mr.
Teig receives an annual base salary of $135,000, which is reviewed annually by
the Board of Directors. In addition, Mr. Teig is eligible for a bonus of up to
20% of his annual base salary to be awarded at the discretion of the Board of
Directors. Simultaneous with the execution of the employment agreement, the
Company and Mr. Teig entered into a stock purchase agreement whereby Mr. Teig
purchased 50,000 shares of Common Stock at $0.30 per share. Under such stock
purchase agreement, the shares will vest, and the Company's repurchase rights
will accordingly lapse over Mr. Teig's four-year period of employment measured
from the date of issuance. Pursuant to his employment agreement, Mr. Teig was
granted, and subsequently exercised, an option to purchase 61,250 shares of
Company's Common Stock with an exercise price of $0.40 per share. Those shares
vest over Mr. Teig's four-year period of service measured from option grant
date.
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<PAGE> 47
In November 1994, the Company and Dr. Caporale entered into an agreement
whereby she was employed as Vice President, Strategic Development. Pursuant to
the agreement, Dr. Caporale received an annual base salary of $160,000 subject
to review and adjustments by the Board of Directors, and a bonus of up to 20% of
her annual base salary. In November 1996, Dr. Caporale resigned from the Company
and the employment agreement terminated. As a result of her termination, Dr.
Caporale received an aggregate severance benefit of nine months of her base
salary and benefits. Simultaneous with the execution of the employment
agreement, the Company and Dr. Caporale entered into a stock purchase agreement,
whereby Dr. Caporale purchased 43,750 shares of Common Stock at $0.20 per share,
and 29,785 were vested at the termination of Dr. Caporale's employment with the
Company.
In connection with an acquisition of the Company by merger or asset sale,
each outstanding option held by the Chief Executive Officer and the other Named
Executive Officers under the Predecessor Plan will terminate, unless those
options are assumed by the successor corporation. However, any options granted
to such individuals in the future under the 1997 Stock Incentive Plan will
automatically accelerate in full, except to the extent such options are to be
assumed by the successor corporation. See "Benefit Plans -- 1997 Stock Incentive
Plan." In addition, the Compensation Committee as Plan Administrator of the 1997
Stock Incentive Plan will have the authority to provide for the accelerated
vesting of the shares of Common Stock subject to outstanding options held by the
Chief Executive Officer and the Named Executive Officers, or any unvested shares
of Common Stock subject to direct issuances held by such individuals, in
connection with the termination of the officer's employment following: (i) a
merger or asset sale in which these options are assumed or the repurchase rights
applicable to those shares are assigned or (ii) certain changes in control of
the Company.
DIRECTOR COMPENSATION
The Company reimburses its directors for all reasonable and necessary
travel and other incidental expenses incurred in connection with their
attendance at meetings of the Board. Directors are not currently compensated for
serving on the Board. The Company has previously granted to certain non-employee
Board members an option to purchase 20,000 shares of Common Stock, and beginning
with the first annual meeting of stockholders following this offering, each such
Board member who continues to serve as a non-employee Board member will
automatically be granted an additional option to purchase 5,000 shares of Common
Stock. In addition, each individual who first becomes a non-employee Board
member at any time after this offering will receive a 20,000-share option grant
on the date such individual joins the Board, and beginning with the first annual
meeting of stockholders following this offering, each such non-employee Board
member who is to continue to serve as a non-employee Board member will
automatically be granted an option to purchase 5,000 shares of Common Stock,
provided such individual has served on the Board for at least six months. These
options will have an exercise price equal to 100% of the fair market value of
the Common Stock on the grant date. The shares subject to each automatic option
grant will vest over a four-year period, with 25% of the option shares vesting
upon completion of one year of Board service from the grant date and the balance
of the option shares vesting in a equal monthly installments over the next three
years. See "-- Benefit Plans -- 1997 Stock Incentive Plan."
BENEFIT PLANS
1997 Stock Incentive Plan
The Company's 1997 Stock Incentive Plan (the "1997 Plan") is intended to
serve as the successor equity incentive program to the Company's 1995 Stock
Option/Stock Issuance Plan, as amended (the "Predecessor Plan"). The 1997 Plan
was adopted by the Board and the stockholders on October 7, 1997. The 1997 Plan
is to become effective on the date the Underwriting Agreement for this offering
is executed (the "Plan Effective Date").
A total of 1,080,603 shares of Common Stock have been authorized for
issuance under the 1997 Plan. Such share reserve consists of (i) the number of
shares available for issuance under the Predecessor Plan on the Plan Effective
Date, including the shares subject to outstanding options, and (ii) an
additional increase of
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<PAGE> 48
approximately 800,000 shares. To the extent any unvested shares of Common Stock
issued under the Predecessor Plan are repurchased by the Company after the Plan
Effective Date, at the exercise price paid per share, in connection with the
holder's termination of service, those repurchased shares will be added to the
reserve of Common Stock available for issuance under the 1997 Plan. In no event
may any one participant in the 1997 Plan receive option grants, separately
exercisable stock appreciation rights or direct stock issuances for more than
500,000 shares of Common Stock in the aggregate per calendar year.
On the Plan Effective Date, outstanding options and unvested shares issued
under the Predecessor Plan will be incorporated into the 1997 Plan, and no
further option grants will be made under the Predecessor Plan. The incorporated
options will continue to be governed by their existing terms, unless the Plan
Administrator elects to extend one or more features of the 1997 Plan to those
options. Except as otherwise noted below, the incorporated options have
substantially the same terms as will be in effect for grants made under the
Discretionary Option Grant Program of the 1997 Plan.
The 1997 Plan is divided into five separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
100% of their fair market value on the grant date, (ii) the Stock Issuance
Program under which such individuals may, in the Plan Administrator's
discretion, be issued shares of Common Stock directly, through the purchase of
such shares at a price not less than 100% of their fair market value at the time
of issuance or as a bonus tied to the performance of services, (iii) the Salary
Investment Option Grant Program which may, in the Plan Administrator's sole
discretion, be activated for one or more calendar years and, if so activated,
will allow executive officers and other highly compensated employees the
opportunity to apply a portion of their base salary to the acquisition of
special below-market stock option grants, (iv) the Automatic Option Grant
Program under which option grants will automatically be made at periodic
intervals to eligible non-employee Board members to purchase shares of Common
Stock at an exercise price equal to 100% of their fair market value on the grant
date and (v) the Director Fee Option Grant Program which may, in the Plan
Administrator's sole discretion, be activated for one or more calendar years
and, if so activated, will allow non-employee Board members the opportunity to
apply a portion of the annual retainer fee, if any, otherwise payable to them in
cash each year to the acquisition of special below-market option grants.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to be
made, the number of shares subject to each such 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
exclusive authority to select the executive officers and other highly
compensated employees who may participate in the Salary Investment Option Grant
Program in the event that program is activated for one or more calendar years,
but neither the Compensation Committee nor the Board will exercise any
administrative discretion with respect to option grants under the Salary
Investment Option Grant Program or under the Automatic Option Grant or Director
Fee Option Grant Program for the non-employee Board members. All grants under
those three latter programs will be made in strict compliance with the express
provisions of each such program.
The exercise price for the shares of Common Stock subject to option grants
made under the 1997 Plan may be paid in cash or in shares of 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 optionee. In
addition, the Plan Administrator may provide financial assistance to one or more
optionees in the exercise of their outstanding options or the purchase of their
unvested shares by allowing such individuals to deliver a full-recourse,
interest-bearing promissory note in payment of the exercise price and any
associated withholding taxes incurred in connection with such exercise or
purchase.
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<PAGE> 49
The Plan Administrator will have the authority, with the consent of the
affected option holders, to effect the cancellation of outstanding options under
the Discretionary Option Grant Program (including options incorporated from the
Predecessor Plan) in return for the grant of new options for the same or
different number of option shares with an exercise price per share based upon
the fair market value of the Common Stock on the new grant date.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock. None of the incorporated options from the
Predecessor Plan contain any stock appreciation rights.
In the event that the Company is 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 automatically accelerate in full,
and all unvested shares under the Discretionary Option Grant and Stock Issuance
Programs will immediately vest, except to the extent the Company's repurchase
rights with respect to those shares are to be assigned to the successor
corporation. The Plan Administrator will have complete discretion to grant one
or more options under the Discretionary Option Grant Program which will become
fully exercisable for all the option shares in the event those options are
assumed in the acquisition and the optionee's service with the Company or the
acquiring entity terminates within a designated period following such
acquisition. The vesting of outstanding shares under the Stock Issuance Program
may be accelerated upon similar terms and conditions. The Plan Administrator
will also have the authority to grant options which will immediately vest upon
an acquisition of the Company, whether or not those options are assumed by the
successor corporation. The Plan Administrator is also authorized under the
Discretionary Option Grant and Stock Issuance Programs to grant options and to
structure repurchase rights so that the shares subject to those options or
repurchase rights will immediately vest in connection with a change in control
of the Company (whether by successful tender offer for more than fifty percent
(50%) of the outstanding voting stock or a change in the majority of the Board
by reason of one or more contested elections for Board membership), with such
vesting to occur either at the time of such change in control or upon the
subsequent termination of the individual's service within a designated period
following such change in control. The options incorporated from the Predecessor
Plan will terminate upon an acquisition of the Company by merger or asset sale,
unless those options are assumed by the successor entity. However, the Plan
Administrator will have the discretion to extend the acceleration provisions of
the 1997 to those options.
In the event the Plan Administrator elects to activate the Salary
Investment Option Grant Program for one or more calendar years, each executive
officer and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce his
or her base salary for that calendar year by a specified dollar amount not less
than $10,000 nor more than $50,000. If such election is approved by the Plan
Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory 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 Common Stock on the grant date. The option
will be exercisable at a price per share equal to one-third of the fair market
value of the option shares on the grant date. As a result, the total spread on
the option shares at the time of grant (the fair market value of the option
shares on the grant date less the aggregate exercise price payable for those
shares) will be equal to the amount of salary invested in that option. The
option will vest in a series of twelve (12) equal monthly installments over the
calendar year for which the salary reduction is to be in effect and will be
subject to full and immediate vesting upon certain changes in the ownership or
control of the Company.
The Company has previously granted to certain non-employee Board members an
option to purchase 20,000 shares of Common Stock, and beginning with the first
annual meeting of stockholders following this offering, each such Board member
who is to continue to serve as a non-employee Board member will automatically be
granted an additional option to purchase 5,000 shares of Common Stock. In
addition, each individual who first becomes a non-employee Board member at any
time after the Plan Effective Date will
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<PAGE> 50
receive a 20,000-share option grant on the date such individual joins the Board,
and on the date of each Annual Stockholders Meeting held after the Plan
Effective Date, each such non-employee Board member who is to continue to serve
as a non-employee Board member will automatically be granted an option to
purchase 5,000 shares of Common Stock, provided such individual has served on
the Board for at least six months.
Each automatic grant for the non-employee Board members will have a term of
10 years, subject to earlier termination following the optionee's cessation of
Board service. Each automatic option will be immediately exercisable for all of
the option shares; however, any unvested shares purchased under the option will
be subject to repurchase by the Company, at the exercise price paid per share,
should the optionee cease Board service prior to vesting in those shares. The
shares subject to each automatic option grant will vest over a four-year period,
as follows: (i) 25% of the option shares upon the optionee's completion of one
year of Board service measured from the grant date and (ii) the balance of the
option shares in a series of 36 successive equal monthly installments upon the
optionee's completion of each additional month of service measured from the
first anniversary of the grant date. However, the shares will immediately vest
in full upon certain changes in control or ownership of the Company or upon the
optionee's death or disability while a Board member.
Should the Director Fee Option Grant 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 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 Common Stock on the grant date. As a result,
the total spread on the option (the fair market value of the option shares on
the grant date less the aggregate exercise price payable for those shares) will
be equal to the portion of the retainer fee invested in that option. The option
will become exercisable for the option shares in a series of twelve (12) equal
monthly installments over the calendar year for which the election is to be in
effect. However, the option will become immediately exercisable for all the
option shares upon (i) certain changes in the ownership or control of the
Company or (ii) the death or disability of the optionee while serving as a Board
member.
The shares subject to each option under the Salary Investment Option Grant,
Automatic Option Grant and Director Fee Option Grant Programs will immediately
vest upon (i) an acquisition of the Company by merger or asset sale or (ii) the
successful completion of a tender offer for more than 50% of the Company's
outstanding voting stock or a change in the majority of the Board effected
through one or more contested elections for Board membership.
Limited stock appreciation rights will automatically be included as part of
each grant made under the Automatic Option Grant, Salary Investment Option Grant
and Director Fee Option Grant Programs and may be granted to one or more
officers of the Company as part of their option grants under the Discretionary
Option Grant Program. Options with such a limited stock appreciation right may
be surrendered to the Company upon the successful completion of a hostile tender
offer for more than 50% of the Company's outstanding voting stock. In return for
the surrendered option, the optionee will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the excess
of (i) the highest price per share of Common Stock paid in connection with the
tender offer over (ii) the exercise price payable for such share.
The Board may amend or modify the 1997 Plan at any time, subject to any
required stockholder approval. The 1997 Plan will terminate on the earliest of
(i) October 31, 2007, (ii) the date on which all shares available for issuance
under the 1997 Plan have been issued as fully vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
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<PAGE> 51
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board and approved by the stockholders in October 1997 and will
become effective immediately upon the execution of the Underwriting Agreement
for this offering. The Purchase Plan is designed to allow eligible employees of
the Company and participating subsidiaries to purchase shares of Common Stock,
at semi-annual intervals, through their periodic payroll deductions under the
Purchase Plan, and a reserve of 150,000 shares of Common Stock has been
established for this purpose.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration for 24 months. However, the initial
offering period will begin on the execution date of the Underwriting Agreement
and will end on the last business day in July 1999. The next offering period
will commence on the first business day in August 1999, and subsequent offering
periods will commence as designated by the Plan Administrator.
Individuals who are eligible employees (scheduled to work more than 20
hours per week for more than 5 calendar months per year) on the start date of
any offering period may enter the Purchase Plan on that start date or on any
subsequent semi-annual entry date (the first business day of February or August
each year). Individuals who become eligible employees after the start date of
the offering period may join the Purchase Plan on any subsequent semi-annual
entry date within that offering period.
Payroll deductions may not exceed 10% of total cash earnings, and the
accumulated payroll deductions of each participant will be applied to the
purchase of shares on his or her behalf on each semi-annual purchase date (the
last business day in January and July each year) at a purchase price per share
equal to 85% of the lower of (i) the fair market value of the Common Stock on
the participant's entry date into the offering period or (ii) the fair market
value on the semi-annual purchase date. In no event, however, may any
participant purchase more than 1,250 shares on any one semi-annual purchase
date.
Should the fair market value per share of Common Stock on any purchase date
be less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day, with all
participants in the terminated offering to be automatically transferred to the
new offering period.
In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the lower of (i) the fair market value per share of Common Stock on the
participant's entry date into the offering period in which such acquisition
occurs or (ii) the fair market value per share of Common Stock immediately prior
to such acquisition.
The Purchase Plan will terminate on the earlier of (i) the last business
day in July 2007, (ii) the date on which all shares available for issuance under
the Purchase Plan shall have been sold pursuant to purchase rights exercised
thereunder or (iii) the date on which all purchase rights are exercised in
connection with an acquisition of the Company by merger or asset sale.
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, certain amendments to the Purchase Plan may require stockholder
approval.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation eliminates, subject to certain
exceptions, directors' personal liability to the Company or its stockholders for
monetary damages for breaches of fiduciary duties. The Certificate of
Incorporation does not, however, eliminate or limit the personal liability of a
director for (i) any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (iv) any transaction from which
the director derived an improper personal benefit.
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<PAGE> 52
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers to the fullest extent permitted under the Delaware
General Corporation Law and may indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law. In addition,
the Company has entered into indemnification agreements with its directors and
officers. The indemnification agreements contain provisions that require the
Company, among other things, to indemnify its directors and executive officers
against certain 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 the Company or other entities
to which they provide service at the request of the Company and to advance
expenses they may incur as a result of any proceeding against them as to which
they could be indemnified. The Company believes that these provisions and
agreements are necessary to attract and retain qualified directors and officers.
The Company has obtained an insurance policy covering directors and officers for
claims that such directors and officers may otherwise be required to pay or for
which the Company is required to indemnify them, subject to certain exclusions.
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<PAGE> 53
CERTAIN TRANSACTIONS
Since its formation in May 1994, the Company has issued, in private
placement transactions, shares of its Preferred Stock as follows (not adjusted
for the one-for-four reverse stock split): 1,000,000 shares of Series A
Preferred Stock at a price of $0.50 per share in August and November 1994;
2,226,667 shares of Series B Preferred Stock at a price of $0.75 per share in
November 1994; 17,158,486 shares of Series C Preferred Stock at a price of $0.62
per share in August 1995, September 1995 and April 1996; 9,869,205 shares of
Series D Preferred Stock at a price of $1.00 per share in November 1996; 232,500
shares of Series J Preferred Stock at a price of $0.10 per share in June 1997;
200,000 shares of Series Z Preferred Stock at a price of $0.50 in October 1994;
and 337,777 shares of Series Z as consideration pursuant to an asset purchase
agreement. The purchasers of Preferred Stock include, among others, the
following directors, executive officers and holders of more than 5% of the
Company's outstanding stock and their respective affiliates (all shares of
Preferred Stock are convertible into Common Stock on a four-for-one basis):
<TABLE>
<CAPTION>
PREFERRED STOCK
EXECUTIVE OFFICERS, DIRECTORS -------------------------------------------------------- TOTAL
AND 5% STOCKHOLDERS SERIES A SERIES B SERIES C SERIES D SERIES J CONSIDERATION
- ----------------------------------------- -------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pierre R. Lamond(1)...................... 400,000 1,333,334 2,169,801 948,837 -- $ 3,494,114
Philippe O. Chambon, M.D., Ph.D.(2)...... -- -- 4,838,710 1,168,198 -- 4,168,198
Vicente Anido, Jr., Ph.D................. -- -- -- 240,000 -- 240,000
Lee R. McCracken(3)...................... -- -- -- 35,000 -- 35,000
Steven L. Teig........................... -- -- -- 20,000 122,500 32,250
Entities affiliated with Sequoia
Capital(1)............................. 400,000 1,333,334 2,169,801 948,837 -- 3,494,114
Entities affiliated with Sprout
Capital(2)............................. -- -- 4,838,710 1,168,198 -- 4,168,198
Entities affiliated with Sorrento Growth
Partners(4)............................ -- -- 2,419,357 584,099 -- 2,084,100
Entities affiliated with Brinson Venture
Capital Fund(5)........................ -- -- 3,225,807 600,000 -- 2,600,000
</TABLE>
- ---------------
(1) Includes 4,348,842 shares purchased by Sequoia Capital VI, 238,949 shares
purchased by Sequoia Technology Partners VI, 128,043 shares purchased by
Sequoia XXIV and 63,115 shares purchased by Sequoia 1995, each of which is
affiliated with Sequoia Partners. Sequoia Partners is the general partner of
Sequoia Capital VI. Sequoia Partners has eight general partners, who are
also the general partners of Sequoia Technology Partners VI. Also includes
73,023 shares issuable to the entities affiliated with Sequoia Partners upon
exercise of warrants at an exercise price of $0.62 per share. In addition,
the entities affiliated with Sequoia Partners purchased 100,000 shares of
Common Stock of the Company in November 1994 (see below). Mr. Lamond is a
Director of the Company and a general partner of Sequoia Partners. Mr.
Lamond disclaims beneficial ownership of such shares except to the extent of
his pecuniary interest therein.
(2) Includes 5,545,317 shares purchased by Sprout Capital VII, L.P. and 461,591
shares purchased by DLJ Capital Corporation. Dr. Chambon is a Director of
the Company and a general partner of Sprout Capital VII, L.P., and DLJ
Capital Corporation is the general partner of Sprout Capital VII, L.P. Dr.
Chambon is a Divisional Vice President of DLJ Capital Corporation. Dr.
Chambon disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest therein.
(3) Held by The Rufus L. McCracken Trust, dated 6/21/91, of which Mr. McCracken
is the sole trustee.
(4) Includes 999,206 shares purchased by Sorrento Ventures II, L.P. and
2,004,250 shares purchased by Sorrento Growth Partners I, L.P.
(5) Includes 536,452 shares purchased by the First National Bank of Chicago as
Custodian to the Brinson Trust Company as Trustee of the Brinson MAP Venture
Capital Fund III and 3,289,355 shares purchased by the First National Bank
of Chicago as Custodian to the Brinson Venture Capital Fund III, L.P.
Holders of Preferred Stock are entitled to certain registration rights with
respect to the Common Stock issued or issuable upon conversion thereof. See
"Description of Capital Stock -- Registration Rights."
52
<PAGE> 54
In November 1994, the Company sold the following number of shares of Common
Stock to the respective entities at a price of $0.20 per share: 22,750 shares to
Sequoia Capital VI; 1,250 shares to Sequoia Technology Partners VI; and 1,000
shares to Sequoia XXIV.
In October 1997, the Company sold 1,000,000 shares of its Common Stock to
Elan International Services Ltd. in conjunction with entering into a
collaborative agreement.
In February 1997, the Company made a loan in the amount of $96,000 to Dr.
Anido, the President, Chief Executive Officer and a Director of the Company,
which loan is secured by shares of Common Stock issuable to Dr. Anido upon the
exercise of options. The loan is represented by a promissory note which is due
and payable on the earlier of February 23, 2002 or the occurrence of certain
events, such as the expiration of the 190-day period following completion of an
initial public offering. The loan bears no interest. The entire amount of the
loan is currently outstanding.
In June 1997, the Company made a loan in the amount of $23,044 to Dr. Anido
which is secured by shares of Common Stock issuable to Dr. Anido upon the
exercise of options. The loan is represented by a promissory note which is due
and payable in three annual installments and is due in full upon the third
anniversary of the loan. The loan bears an interest rate of 6.14%. The entire
amount of the loan is currently outstanding.
In September 1995, the Company made a loan in the amount of $150,000 to Dr.
Myers, the Vice President, Chief Scientific Officer, Chief Operating Officer and
a Director of the Company, which loan is secured by shares of Common Stock. The
loan is represented by a promissory note which is due and payable on the earlier
of September 5, 2000 or the occurrence of certain events, such as the expiration
of the 180-day period following completion of a public offering. The loan bears
an interest equal to the applicable minimum Federal rate on the date of the
loan. The entire amount of the loan is currently outstanding.
In August 1996, the Company made a loan in the amount of $66,125 to Dr.
Saunders for relocation in connection with employment, which is secured by a
deed of trust. The loan is represented by a promissory note which is due and
payable on the earlier of August 28, 1999 or the occurrence of certain events,
such as the expiration of the 30-day period following the date Dr. Saunders
ceases to be a full-time employee of the Company. The loan bears no interest.
Dr. Saunders has made a principal payment of $22,000.
For information regarding employment agreements with Named Executive
Officers, see "Management -- Employment Agreements and Change of Control
Arrangements."
All of the Company's officers are employed by the Company at will. The
Company has entered into indemnification agreements with each of its directors
and executive officers. See "Management -- Limitations on Liability and
Indemnification Matters."
The Company expects that all future transactions between the Company and
its officers, directors and principal stockholders and their affiliates will be
approved in accordance with the Delaware General Corporation Law by a majority
of the Board, as well as by a majority of the independent and disinterested
directors of the Board, and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
53
<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 15, 1997, and as adjusted to reflect
the sale of the shares of the Common Stock offered hereby by the Company, by (i)
all those known by the Company to be beneficial owners of more than 5% of its
outstanding Common Stock, (ii) each director of the Company, (iii) each of the
Named Executive Officers of the Company and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED(2)
BENEFICIALLY ----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) PRIOR TO OFFERING AFTER OFFERING
- ---------------------------------------------------------- ------------ ----------------- --------------
<S> <C> <C> <C>
Sprout Capital VII, L.P. and affiliated entities(3)....... 1,501,729 13.7% 11.4%
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Sequoia Capital VI and affiliated entities(4)............. 1,237,999 11.3% 9.4%
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Elan International Services Ltd........................... 1,000,000 9.1% 7.6%
102 St. James Court
Flatts
Smiths, FL04
Bermuda
Brinson MAP Venture Capital Fund III and affiliated
entities(5)............................................. 956,453 8.7% 7.2%
209 S. LaSalle Street
Chicago, IL 60604-1295
Sorrento Growth Partners I, L.P. and affiliated
entities(6)............................................. 750,867 6.8% 5.7%
4225 Executive Square, Suite 1400
San Diego, CA 92037
Pierre R. Lamond(4)....................................... 1,237,999 11.3% 9.4%
Vicente Anido, Jr., Ph.D.(7).............................. 582,417 5.3% 4.4%
Peter L. Myers, Ph.D.(8).................................. 272,500 2.5% 2.0%
Philippe O. Chambon, MD., Ph.D.(3)........................ 1,501,729 13.7% 11.4%
Arthur Reidel(9).......................................... 20,000 * *
William Scott, Ph.D.(10).................................. 20,000 * *
Lee R. McCracken(11)...................................... 93,750 * *
John Saunders, Ph.D....................................... 83,825 * *
Steven L. Teig(12)........................................ 246,875 2.2% 1.9%
Lynn Caporale, Ph.D....................................... 38,062 * *
201 W. 70th Street
New York, NY 10023
All directors and executive officers
as a group (9 persons)(13).............................. 4,067,145 36.2% 30.1%
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent of the outstanding
shares of the Company's Common Stock.
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them. Share ownership in
each case includes shares issuable upon exercise of certain outstanding
options as described in the footnotes below. The address for those
individuals for which an address is not otherwise indicated is: 9050 Camino
Santa Fe, San Diego, CA 92121.
54
<PAGE> 56
(2) Percentage of ownership is calculated pursuant to Commission Rule
13d-3(d)(1).
(3) Includes 1,386,331 shares purchased by Sprout Capital VII, L.P. and 115,398
shares purchased by DLJ Capital Corporation. DLJ Capital Corporation is the
managing general partner of Sprout Capital VII, L.P. Dr. Chambon is a
Director of the Company, a general partner of Sprout Capital VII, L.P. and
Divisional Vice President of DLJ Capital Corporation. Dr. Chambon disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(4) Includes 1,109,962 shares held by Sequoia Capital VI, 60,988 shares held by
Sequoia Technology Partners VI, 33,012 shares held by Sequoia XXIV and
15,780 shares held by Sequoia 1995, each of which is affiliated with
Sequoia Partners. Sequoia Partners is the general partner of Sequoia
Capital VI. Sequoia Partners has eight general partners, who are also the
general partners of Sequoia Technology Partners VI. Also includes 16,613,
913 and 731 shares held by Sequoia Capital VI, Sequoia Technology Partners
VI and Sequoia XXIV, respectively, issuable upon exercise of warrants
exercisable within 60 days of October 15, 1997. Mr. Lamond is a Director of
the Company and a general partner of Sequoia Partners. Mr. Lamond disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(5) Includes 134,113 shares purchased by the First National Bank of Chicago as
Custodian to the Brinson Trust Company as Trustee of the Brinson MAP
Venture Capital Fund III and 822,340 shares purchased by The First National
Bank of Chicago as Custodian to the Brinson Venture Capital Fund III, L.P.
(6) Includes 249,803 shares held by Sorrento Ventures II, L.P. and 501,064
shares held by Sorrento Growth Partners I, L.P.
(7) Includes 100,000 shares issuable upon exercise of options exercisable
within 60 days of October 15, 1997.
(8) Includes 50,000 shares issuable upon exercise of options exercisable within
60 days of October 15, 1997.
(9) Includes 20,000 shares issuable upon exercise of options exercisable within
60 days of October 15, 1997.
(10) Includes 20,000 shares issuable upon exercise of options exercisable within
60 days of October 15, 1997.
(11) Includes 8,750 shares held by the Rufus L. McCracken Trust, dated 6/21/91,
of which Mr. McCracken is the sole Trustee. Includes 12,500 shares issuable
upon exercise of options exercisable within 60 days of October 15, 1997.
(12) Includes 50,000 shares issuable upon exercise of options exercisable within
60 days of October 15, 1997.
(13) Includes 270,757 shares issuable upon the exercise of options or warrants
exercisable within 60 days of October 15, 1997.
55
<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the Company will be authorized to issue
40,000,000 shares of Common Stock, $0.001 par value per share, and 5,000,000
shares of undesignated Preferred Stock, $0.001 par value per share.
COMMON STOCK
As of September 30, 1997, there were 9,668,505 shares of Common Stock
outstanding and held of record by approximately 125 stockholders. The holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. Subject to preferences that may
be applicable to any outstanding shares of Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board out of funds legally available. See "Dividend Policy." All outstanding
shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
After completion of this offering, the Board will have the authority,
without further action by the stockholders, to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, priorities,
preferences, qualifications, limitations and restrictions, including dividend
rights, conversion rights, voting rights, terms of redemption, terms of sinking
funds, liquidation preferences and the number of shares constituting any series
or the designation of such series, which could decrease the amount of earnings
and assets available for distribution to holders of Common Stock or adversely
affect the rights and powers, including voting rights, of the holders of the
Common Stock. The issuance of Preferred Stock could have the effect of delaying
or preventing a change in control of the Company or make removal of management
more difficult. Additionally, the issuance of Preferred Stock may have the
effect of decreasing the market price of the Common Stock and may adversely
affect the voting and other rights of the holders of Common Stock. There are
currently no shares of Preferred Stock outstanding and the Company has no
current plans to issue any of the Preferred Stock.
WARRANTS
In December 1994, in conjunction with an equipment lease financing, the
Company issued a warrant to Comdisco, Inc. to purchase up to 20,914 shares of
Common Stock at $2.00 per share, exercisable at any time and prior to the
earlier of December 20, 2004 or five years following the Company's initial
public offering. The warrant contains provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon exercise of the
warrant under certain circumstances, including stock dividends, stock splits,
reorganizations, reclassifications or consolidations. The warrant provides that
the warrant holder may exercise the warrant without payment of cash by
surrendering the warrant and receiving shares of Common Stock equal to the value
of the warrant surrendered.
In June 1995, in connection with a product development collaboration, the
Company issued a warrant to LJL BioSystems, Inc. to purchase 8,750 shares of
Common Stock, exercisable at any time and prior to June 15, 2000, at $0.30 per
share. The warrant contains provisions for the adjustment of the exercise price
and the aggregate number of shares issuable upon exercise of the warrant under
certain circumstances, including stock dividends, stock splits, reorganizations,
reclassifications or consolidations.
In August 1995, in connection with the Series C Preferred Stock private
placement, the Company issued warrants to five investors to purchase an
aggregate of 30,242 shares of Common Stock, exercisable at any time and prior to
August 2000 at $2.48 per share. Each warrant contains provisions for the
adjustment of the exercise price and the aggregate number of shares issuable
upon exercise of the warrant under certain circumstances, including stock
dividends, stock splits, reorganizations, reclassifications or consolidations.
Each warrant provides that the warrant holder may exercise the warrant without
payment of cash by surrendering the warrant and receiving shares of Common Stock
equal to the value of the warrant surrendered.
56
<PAGE> 58
In April 1996, in conjunction with equipment lease financings, the Company
issued warrants to Comdisco, Inc. to purchase up to an aggregate of 35,383
shares of Common Stock at $2.48 per share, exercisable at any time and prior to
the earlier of April 2003 or three years after the Company's initial public
offering. The number of shares issuable pursuant to these warrants was dependent
on the aggregate amount financed with Comdisco, and pursuant to these warrants,
Comdisco has the right to purchase an aggregate of 26,647 shares of the Company.
Each warrant contains provisions for the adjustment of the exercise price and
the aggregate number of shares issuable upon exercise of each warrant under
certain circumstances, including stock dividends, stock splits, reorganizations,
reclassifications or consolidations. Each warrant provides that the warrant
holder may exercise the warrant without payment of cash by surrendering the
warrant and receiving shares of Common Stock equal to the value of the warrant
surrendered.
In May 1996, in conjunction with an equipment lease financing, the Company
issued warrants to Silicon Valley Bank and MMC/GATX Partnership No. 1 to
purchase up to 6,896 and 21,331 shares of Common Stock, respectively, at $2.48
per share, respectively, exercisable at any time and prior to the earlier of May
2006 or five years following the Company's initial public offering. Each warrant
contains provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon exercise of each warrant under certain
circumstances, including stock dividends, stock splits, reorganizations,
reclassifications or consolidations. Each warrant provides that the warrant
holder may exercise the warrant without payment of cash by surrendering the
warrant and receiving shares of Common Stock equal to the value of the warrant
surrendered.
In June 1996, in conjunction with equipment lease financings, the Company
issued warrants to Comdisco, Inc. to purchase up to an aggregate of 24,698
shares of Common Stock at $2.48 per share, exercisable at any time and prior to
the earlier of June 2003 or three years after the Company's initial public
offering. Each warrant contains provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon exercise of each warrant
under certain circumstances, including stock dividends, stock splits,
reorganizations, reclassifications or consolidations. Each warrant provides that
the warrant holder may exercise the warrant without payment of cash by
surrendering the warrant and receiving shares of Common Stock equal to the value
of the warrant surrendered.
REGISTRATION RIGHTS
The holders of approximately 7,754,933 shares of Common Stock or their
permitted transferees (the "Holders") are entitled to certain rights with
respect to the registration of such shares under the Securities Act. Under the
terms of agreements between the Company and such Holders, if the Company
proposes to register any of its securities under the Securities Act for its own
account, such Holders are entitled to notice of such registration and are
entitled to include shares of such Common Stock therein, provided, among other
conditions, that the underwriters of any such offering have the right to limit
the number of shares included in such registration. In addition, Holders of at
least 50% of approximately 7,754,933 shares of Common Stock with demand
registration rights may require the Company to prepare and file a registration
statement under the Securities Act with respect to the shares entitled to demand
registration rights, and the Company is required to use its diligent best
efforts to effect such registration, subject to certain conditions and
limitations. The Company is not obligated to effect more than two of these
stockholder-initiated registrations nor to effect such a registration within 180
days following an offering of the Company's securities, including the Offering
made hereby. The Holders may also request the Company to register such shares on
Form S-3 provided the shares registered have an aggregate market value of at
least $500,000. The Company is not obligated to effect more than one of these
registrations pursuant to Form S-3 in any 12-month period. Generally, the
Company is required to bear the expense of all such registrations. The
registration rights of each Holder expires at such time after the Offering as
all shares held by such Holder can be sold within any three-month period
pursuant to Rule 144. All rights of the Holders to require registration of the
resale of their shares in connection with this Offering have been waived.
57
<PAGE> 59
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Restated Certificate of Incorporation and Restated Bylaws
The Company's Restated Certificate of Incorporation authorizes the Board to
establish one or more series of undesignated Preferred Stock, the terms of which
can be determined by the Board at the time of issuance. See "-- Preferred
Stock." The Restated Certificate of Incorporation also provides that all
stockholder action must be effected at a duly called meeting of stockholders and
not by a consent in writing. The Company's Restated Bylaws provide that the
Company's Board will be classified into three classes of directors beginning at
the next annual meeting of stockholders. See "Management -- Executive Officers,
Key Employees and Directors." In addition, the Restated Bylaws do not permit
stockholders of the Company to call a special meeting of stockholders; only the
Company's Chief Executive Officer, President, Chairman of the Board or a
majority of the Board are permitted to call a special meeting of stockholders.
The Restated Bylaws also require that stockholders give advance notice to the
Company's secretary of any nominations for director or other business to be
brought by stockholders at any stockholders' meeting and require a supermajority
vote of members of the Board and/or stockholders to amend certain Restated Bylaw
provisions. These provisions of the Restated Certificate of Incorporation and
the Restated Bylaws could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions may also
have the effect of preventing changes in the management of the Company.
Delaware Anti-Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder (defined as any person or entity that is the beneficial owner of at
least 15% of a corporation's voting stock) for a period of three years following
the time that such stockholder became an interested stockholder, unless: (i)
prior to such time, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the stockholder's
becoming an interested stockholder; (ii) upon consummation of the transaction
that resulted in the stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding, for purposes of
determining the number of shares outstanding, those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) at or subsequent to such time, the business combination is approved by
the Board and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include:. (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, lease, exchange, mortgage, transfer, pledge or other disposition involving
the interested stockholder and 10% or more of the assets of the corporation;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder; (iv) 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
(v) 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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
58
<PAGE> 60
SHARES ELIGIBLE FOR FUTURE SALE
Based upon the number of shares outstanding as of September 30, 1997 (after
giving effect to the issuance of an aggregate of 1,250,000 shares to
collaborative partners in October 1997), upon completion of this offering, there
will be 13,168,505 shares of Common Stock of the Company outstanding. There were
also approximately 26,177 shares covered by vested options outstanding, which
are not considered to be outstanding shares. Of the outstanding shares,
3,183,575 shares, including the 2,250,000 shares of Common Stock sold in this
offering, will be immediately eligible for resale in the public market without
restriction under the Securities Act, except that any shares purchased in this
offering by affiliates of the Company ("Affiliates"), as that term is defined in
Rule 144 under the Securities Act ("Rule 144"), may generally only be resold in
compliance with applicable provisions of Rule 144. Beginning approximately 90
days after the date of this Prospectus, approximately 867,573 additional shares
of Common Stock (including approximately 42,727 shares covered by options
exercisable within the 90-day period following the date of this Prospectus) will
become eligible for immediate resale in the public market, subject to compliance
as to certain of such shares with applicable provisions of Rules 144 and 701.
The Company, the executive officers and directors of the Company and
certain security holders have agreed pursuant to lock-up agreements that they
will not, without the prior written consent of BancAmerica Robertson Stephens,
offer, sell or otherwise dispose of the shares of Common Stock beneficially
owned by them for a period of 180 days from the date of this Prospectus. Each
holder who signed a lock-up agreement has agreed, subject to certain limited
exceptions, not to sell or otherwise dispose of any of the shares held by them
as of the date of this Prospectus for a period of 180 days after the date of
this Prospectus without the prior written consent of BancAmerica Robertson
Stephens. At the end of such 180-day period, approximately 11,502,437 shares of
Common Stock (including approximately 52,657 shares issuable upon exercise of
vested options) will be eligible for immediate resale, subject to compliance
with Rule 144 and Rule 701. The remainder of the approximately 1,666,068 shares
of Common Stock outstanding or issuable upon exercise of options held by
existing stockholders or option holders will become eligible for sale at various
times over a period of less than two years and could be sold earlier if the
holders exercise any available registration rights or upon vesting pursuant to
the Company's standard four year vesting schedule.
In general, under Rule 144 as recently amended, beginning approximately 90
days after the effective date of the Registration Statement of which this
Prospectus is a part, a stockholder, including an Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined in
Rule 144) for at least one year from the later of the date such securities were
acquired from the Company or (if applicable) the date they were acquired from an
Affiliate is entitled to sell, within any three-month period, a number of such
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock (approximately 132,000 shares immediately after the offering) or
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of
the Company for at least three months prior to the sale is entitled to sell the
shares immediately without compliance with the foregoing requirements under Rule
144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted prior
to this offering) are also restricted securities and, beginning 90 days after
the date of this Prospectus, may be sold by stockholders other than an Affiliate
of the Company subject only to the manner of sale provisions of Rule 144 and by
an Affiliate under Rule 144 without compliance with its one-year holding period
requirement.
Prior to this offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. The Company is unable to estimate
the number of shares that may be sold in the public market pursuant to Rule 144,
since this will depend on the market price
59
<PAGE> 61
of the Common Stock, the personal circumstances of the sellers and other
factors. Nevertheless, sales of significant amounts of the Common Stock of the
Company in the public market could adversely affect the market price of the
Common Stock and could impair the Company's ability to raise capital through an
offering of its equity securities.
In addition, the Company intends to register on the effective date of this
offering a total of 1,925,606 shares of Common Stock subject to outstanding
options or reserved for issuance under the Company's 1997 Stock Incentive Plan
or outstanding shares which are subject to repurchase by the Company plus
150,000 shares of Common Stock reserved for issuance under its 1997 Employee
Stock Purchase Plan. Further, upon expiration of such lock-up agreements,
holders of approximately 7,754,933 shares of Common Stock will be entitled to
certain registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have a material
adverse effect on the market price of the Common Stock.
60
<PAGE> 62
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, Donaldson, Lufkin & Jenrette Securities
Corporation and UBS Securities LLC (the "Representatives"), have severally
agreed with the Company, subject to the terms and conditions of the Underwriting
Agreement, to purchase the numbers of shares of Common Stock set forth opposite
their respective names below. The Underwriters are committed to purchase and pay
for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
------------------------------------------------------------------ ----------
<S> <C>
BancAmerica Robertson Stephens....................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
UBS Securities LLC................................................
---------
Total................................................... 2,250,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer shares of the Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the Representatives. No such reduction shall change the amount of proceeds to
be received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 337,500
additional shares of Common Stock, at the same price per share as will be paid
for the 2,250,000 shares that the Underwriters have agreed to purchase. To the
extent that the Underwriters exercise such option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage of such
additional shares that the number of shares of Common Stock to be purchased by
it shown in the above table represents as a percentage of the 2,250,000 shares
offered hereby. If purchased, such additional shares will be sold by the
Underwriters on the same terms as those on which the 2,250,000 shares are being
sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each officer and director and certain holders of shares of the Company's
Common Stock have agreed with the Representatives, for a period of 180 days
after the date of this Prospectus (the "Lock-Up Period"), subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of Common Stock,
any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of Common Stock owned as
of the date of this Prospectus or thereafter acquired directly by such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of BancAmerica Robertson
Stephens. However, BancAmerica Robertson Stephens may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. There are no agreements between the
Representatives and any of the Company's stockholders providing consent by the
Representatives to the sale of shares prior to the expiration of the Lock-Up
Period. The Company has agreed that during the Lock-Up Period, the Company will
not, subject to certain exceptions, without the prior written consent of
BancAmerica Robertson Stephens, (i) consent to the disposition of any shares
held by stockholders prior to the expiration of the Lock-Up Period or (ii)
issue, sell, contract to sell or otherwise dispose of, any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock or any
securities convertible into, exercisable for or exchangeable for shares of
Common Stock, other than the Company's sale of shares in this offering, the
issuance of Common Stock upon the exercise of outstanding options and warrants
and the Company's issuance of options and stock under the existing stock option
and stock purchase plans. See "Shares Eligible for Future Sale."
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<PAGE> 63
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
Common Stock offered hereby.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby will be determined through negotiations between the
Company and the Representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain financial information of
the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
Certain persons participating in this offering may engage in transactions,
including syndicate covering transactions or the imposition of penalty bids,
which may involve the purchase of Common Stock on the Nasdaq National Market or
otherwise. Such transactions may stabilize or maintain the market price of the
Common Stock at a level above that which might otherwise prevail in the open
market and, if commenced, may be discontinued at any time.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, San Diego, California. Partners of
such firm own 2,500 shares of the Company's Common Stock. Certain legal matters
will be passed upon for the Underwriters by Cooley Godward LLP, San Diego,
California.
EXPERTS
The financial statements of CombiChem for the period from May 23, 1994
(inception) to December 31, 1994, the years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1997 appearing in this Prospectus and the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
62
<PAGE> 64
ADDITIONAL INFORMATION
The Company has filed with the Commission the Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respect by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of all of any part thereof may be obtained
at prescribed rates from the Commission's Public Reference Section at such
addresses. Also, the Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. Upon approval of the Common Stock for quotation on the Nasdaq
National Market, such reports, proxy and information statements and other
information also can be inspected at the office of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
63
<PAGE> 65
COMBICHEM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets at December 31, 1995 and 1996 and September 30, 1997................... F-3
Statements of Operations for the period from May 23, 1994 (inception) to December 31,
1994, the years ended December 31, 1995 and 1996 and the nine months ended September
30, 1996 (unaudited) and 1997....................................................... F-4
Statements of Redeemable Preferred Stock and Stockholders' Equity (Deficit) for the
period from May 23, 1994 (inception) through September 30, 1997..................... F-5
Statements of Cash Flows for the period from May 23, 1994 (inception) to December 31,
1994, the years ended December 31, 1995 and 1996 and the nine months ended September
30, 1996 (unaudited) and 1997....................................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 66
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
CombiChem, Inc.
We have audited the accompanying balance sheets of CombiChem, Inc. as of
December 31, 1995 and 1996 and September 30, 1997, and the related statements of
operations, redeemable preferred stock and stockholders' equity (deficit), and
cash flows for the period from May 23, 1994 (inception) to December 31, 1994,
the years ended December 31, 1995 and 1996 and the nine months ended September
30, 1997. 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 generally accepted auditing
standards. 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 CombiChem, Inc. at December
31, 1995 and 1996 and September 30, 1997, and the results of its operations and
its cash flows for the period from May 23, 1994 (inception) to December 31,
1994, the years ended December 31, 1995 and 1996 and the nine months ended
September 30, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
October 15, 1997
F-2
<PAGE> 67
COMBICHEM, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ------------- -------------
1995 1996 1997 1997
----------- ------------ ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 3,135,588 $ 366,983 $ 4,286,957
Short-term investments....................... -- 12,166,132 4,114,700
Restricted cash.............................. -- 325,000 --
Prepaid expenses and other current assets.... 191,076 543,647 518,568
----------- ------------ ------------
Total current assets................. 3,326,664 13,401,762 8,920,225
Property and equipment, net.................... 634,230 2,899,155 4,080,130
Deposits and other assets...................... 36,018 138,095 156,481
Notes receivable from employee/stockholders.... 152,866 218,991 206,301
----------- ------------ ------------
Total assets......................... $ 4,149,778 $ 16,658,003 $ 13,363,137
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses........ $ 636,033 $ 1,243,139 $ 1,422,516
Deferred revenue............................. -- 2,130,000 1,187,501
Notes payable................................ 540,000 -- --
Current portion of obligations under capital
leases.................................... 160,521 758,085 1,021,946
----------- ------------ ------------
Total current liabilities............ 1,336,554 4,131,224 3,631,963
Deferred rent.................................. -- 30,409 76,023
Obligations under capital leases, less current
portion...................................... 423,711 1,752,646 2,377,410
Commitments
Redeemable convertible preferred stock, $.001
par value, 63,196,296 shares authorized;
3,868,063, 7,696,808 and 7,754,933 shares
issued and outstanding at December 31, 1995
and 1996 and September 30, 1997, respectively
(5,000,000 shares authorized, no shares
issued and outstanding pro forma)............ 9,650,425 23,106,728 23,129,968 $ --
Stockholders' equity (deficit):
Common stock, $.001 par value, 80,000,000
shares authorized; 660,165, 711,605, and
1,913,572 shares issued and outstanding at
December 31, 1995 and 1996 and September
30, 1997, respectively, (40,000,000 shares
authorized, 9,668,505 shares issued and
outstanding pro forma).................... 660 712 1,913 9,668
Additional paid-in capital................... 119,057 135,340 1,976,428 25,098,641
Deferred compensation........................ -- -- (1,325,597) (1,325,597)
Notes receivable from stockholders........... -- -- (336,562) (336,562)
Accumulated deficit.......................... (7,380,629) (12,499,056) (16,168,409) (16,168,409)
----------- ------------ ------------ ------------
Total stockholders' equity
(deficit).......................... (7,260,912) (12,363,004) (15,852,227) 7,277,741
----------- ------------ ------------ ------------
Total liabilities and stockholders'
equity (deficit)................... $ 4,149,778 $ 16,658,003 $ 13,363,137 $ 13,363,137
=========== ============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 68
COMBICHEM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
PERIOD FROM SEPTEMBER 30,
MAY 23, 1994 -------------------------
(INCEPTION) TO YEAR ENDED DECEMBER 31, 1996
DECEMBER 31 ------------------------- -----------
1994 1995 1996 1997
-------------- ----------- ----------- (unaudited) -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Revenue under collaborative
agreements................. $ -- $ -- $ 2,920,000 $ 1,022,500 $ 4,598,999
Grant revenue................. -- 50,440 47,400 47,400 --
--------- ----------- ----------- ----------- -----------
Total revenue......... -- 50,440 2,967,400 1,069,900 4,598,999
Operating expenses:
Research and development...... (413,305) (4,763,043) (5,240,253) (3,810,328) (5,985,365)
General and administrative.... (297,313) (2,000,652) (2,845,074) (1,708,842) (2,355,942)
--------- ----------- ----------- ----------- -----------
Total operating
expenses............ (710,618) (6,763,695) (8,085,327) (5,519,170) (8,341,307)
--------- ----------- ----------- ----------- -----------
Loss from operations............ (710,618) (6,713,255) (5,117,927) (4,449,270) (3,742,308)
Interest income................. 4,547 94,737 144,639 86,153 437,594
Interest expense................ -- (56,040) (145,139) (97,570) (164,639)
Foreign tax expense............. -- -- -- (200,000)
--------- ----------- ----------- ----------- -----------
Net loss........................ $ (706,071) $(6,674,558) $(5,118,427) $(4,460,687) $(3,669,353)
========= =========== =========== =========== ===========
Pro forma net loss per share.... $ (0.66) $ (0.45)
=========== ===========
Shares used in calculating pro
forma net loss per share...... 7,797,050 8,191,596
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 69
COMBICHEM, INC.
STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE CONVERTIBLE ----------------------------------------------
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
--------- ----------- --------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock........................... -- $ -- 433,125 $ 433 $ 23,567 $ --
Sale of Series A preferred stock................... 250,000 500,000 -- -- -- --
Issuance of Series Z preferred stock for
technology....................................... 50,000 100,000 -- -- -- --
Sale of Series B preferred stock................... 550,000 1,650,000 -- -- -- --
Net loss........................................... -- -- -- -- -- --
--------- ----------- --------- ------ ---------- ------------
Balance at December 31, 1994......................... 850,000 2,250,000 433,125 433 23,567 --
Sale of common stock............................... -- -- 194,750 195 58,230 --
Issuance of common stock for technology............ -- -- 100,000 100 39,900 --
Sale of Series B preferred stock................... 6,669 20,000 -- -- -- --
Sale of Series C preferred stock................... 2,808,702 6,877,749 -- -- -- --
Conversion of notes payable and interest into
Series C preferred stock......................... 202,692 502,676 -- -- -- --
Repurchase and cancellation of common stock........ -- -- (67,710) (68) (2,640) --
Net loss........................................... -- -- -- -- -- --
--------- ----------- --------- ------ ---------- ------------
Balance at December 31, 1995......................... 3,868,063 9,650,425 660,165 660 119,057 --
Sale of common stock............................... -- -- 74,000 74 22,126 --
Sale of Series C preferred stock................... 1,278,240 3,142,045 -- -- -- --
Sale of Series D preferred stock................... 2,467,310 9,853,345 -- -- -- --
Conversion of notes payable and interest into
Series Z preferred stock......................... 83,195 460,913 -- -- -- --
Repurchase and cancellation of common stock........ -- -- (22,560) (22) (5,843) --
Net loss........................................... -- -- -- -- -- --
--------- ----------- --------- ------ ---------- ------------
Balance at December 31, 1996......................... 7,696,808 23,106,728 711,605 712 135,340 --
Sale of common stock............................... -- -- 32,500 32 19,718 --
Sale of Series J preferred stock................... 58,125 23,240
Deferred compensation related to stock options..... -- -- -- -- 1,401,075 (1,401,075)
Amortization of deferred compensation.............. -- -- -- -- -- 75,478
Sale of common stock for notes receivable.......... -- -- 1,169,467 1,169 420,295 --
Repayment of notes receivable...................... -- -- -- -- -- --
Net loss........................................... -- -- -- -- -- --
--------- ----------- --------- ------ ---------- ------------
Balance at September 30, 1997........................ 7,754,933 $23,129,968 1,913,572 $1,913 $1,976,428 $(1,325,597)
======== ========== ======== ====== ========= ============
<CAPTION>
NOTES
RECEIVABLE TOTAL
FROM ACCUMULATED STOCKHOLDERS'
STOCKHOLDERS DEFICIT EQUITY (DEFICIT)
------------ ------------ ----------------
<S> <C> <C> <C>
Issuance of common stock........................... $ -- $ -- $ 24,000
Sale of Series A preferred stock................... -- -- --
Issuance of Series Z preferred stock for
technology....................................... -- -- --
Sale of Series B preferred stock................... -- -- --
Net loss........................................... -- (706,071) (706,071)
------------ ------------ ----------------
Balance at December 31, 1994......................... -- (706,071) (682,071)
Sale of common stock............................... -- -- 58,425
Issuance of common stock for technology............ -- -- 40,000
Sale of Series B preferred stock................... -- -- --
Sale of Series C preferred stock................... -- -- --
Conversion of notes payable and interest into
Series C preferred stock......................... -- -- --
Repurchase and cancellation of common stock........ -- -- (2,708)
Net loss........................................... -- (6,674,558) (6,674,558)
------------ ------------ ----------------
Balance at December 31, 1995......................... -- (7,380,629) (7,260,912)
Sale of common stock............................... -- -- 22,200
Sale of Series C preferred stock................... -- -- --
Sale of Series D preferred stock................... -- -- --
Conversion of notes payable and interest into
Series Z preferred stock......................... -- -- --
Repurchase and cancellation of common stock........ -- -- (5,865)
Net loss........................................... -- (5,118,427) (5,118,427)
------------ ------------ ----------------
Balance at December 31, 1996......................... -- (12,499,056) (12,363,004)
Sale of common stock............................... -- -- 19,750
Sale of Series J preferred stock...................
Deferred compensation related to stock options..... -- -- --
Amortization of deferred compensation.............. -- -- 75,478
Sale of common stock for notes receivable.......... (421,464) -- --
Repayment of notes receivable...................... 84,902 -- 84,902
Net loss........................................... -- (3,669,353) (3,669,353)
------------ ------------ ----------------
Balance at September 30, 1997........................ $ (336,562) $(16,168,409) $(15,852,227)
=========== =========== ==============
</TABLE>
See accompanying notes.
F-5
<PAGE> 70
COMBICHEM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 23, 1994 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1994 1995 1996 1996 1997
-------------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (706,071) $(6,674,558) $(5,118,427) $(4,460,687) $(3,669,353)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 4,946 106,763 310,765 211,094 559,823
Deferred rent..................................... -- -- 30,409 -- 45,614
Deferred revenue.................................. -- -- 2,130,000 212,500 (942,499)
In-process research and development acquired for
convertible notes payable and accrued
interest........................................ -- 591,358 -- -- --
In-process research and development acquired for
note payable.................................... 35,000 -- -- -- --
Amortization of deferred compensation............. -- -- -- -- 75,478
Stock issued for technology....................... 100,000 40,000 -- -- --
Interest payable converted to preferred stock..... 2,676 20,913 20,913 --
Change in operating assets and liabilities:
Prepaid expenses and other current assets....... (26,081) (135,440) (352,571) (333,809) 25,079
Accounts payable and accrued expenses........... 192,938 443,095 607,106 (50,909) 179,377
---------- ----------- ----------- ----------- -----------
Net cash used in operating activities...... (399,268) (5,626,106) (2,371,805) (4,400,898) (3,726,481)
Cash flows from investing activities:
Purchases of short-term investments............... -- -- (12,166,132) -- (3,601,045)
Maturities of short-term investments.............. -- -- -- -- 11,652,477
Purchases of property and equipment............... (107,061) -- (238,315) (237,590) (235,203)
Deposits and other assets......................... (45,941) 9,923 (102,077) 7,444 (18,386)
Notes receivable from employees................... -- (179,555) (66,125) (79,165) 12,690
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities............................... (153,002) (169,632) (12,572,649) (309,311) 7,810,533
Cash flows from financing activities:
Principal payments under capital lease
obligations..................................... -- (108,870) (410,876) (176,528) (616,970)
Issuance of redeemable convertible preferred
stock, net of issuance costs.................... 2,150,000 6,897,749 12,995,390 3,151,156 11,063
Issuance of common stock, net of repurchased
shares.......................................... 24,000 55,717 16,335 (2,195) 116,829
Payments on note payable.......................... -- (35,000) (100,000) (100,000) --
Restricted cash given as collateral for letter of
credit.......................................... -- -- (325,000) (325,000) 325,000
Proceeds from convertible notes payable........... -- 750,000 -- -- --
Repayments of convertible notes payable........... -- (250,000) -- -- --
---------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................... 2,174,000 7,309,596 12,175,849 2,547,433 (164,078)
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 1,621,730 1,513,858 (2,768,605) (2,162,776) 3,919,974
Cash and cash equivalents at beginning of period.... -- 1,621,730 3,135,588 3,135,588 366,983
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period.......... $1,621,730 $ 3,135,588 $ 366,983 $ 972,812 $ 4,286,957
========== =========== =========== =========== ===========
Supplemental disclosures of cash flow information
Interest paid....................................... $ -- $ 56,040 $ 124,226 $ 64,636 $ 169,329
========== =========== =========== =========== ===========
Supplemental schedule of noncash investing and
financing activities
Capital lease obligations entered into for
equipment......................................... $ -- $ 693,102 $ 2,337,375 $ 1,168,828 $ 1,523,627
========== =========== =========== =========== ===========
Conversion of convertible notes payable and interest
payable to redeemable convertible preferred
stock............................................. $ -- $ 502,676 $ 440,000 $ 440,000 $ --
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 71
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
CombiChem, Inc. is a computational drug discovery company that is applying
its proprietary design technology and rapid synthesis capabilities to accelerate
the discovery process for new drugs. The Company believes its approach offers
pharmaceutical and biotechnology companies the opportunity to conduct their drug
discovery efforts in a more productive and cost-effective manner. Using its
Discovery Engine(TM) process, the Company focuses on the generation, evolution
and optimization of potential new lead candidates for its collaborative
partners, who will then develop, manufacture, market and sell any resulting
drugs. CombiChem believes that its process is widely applicable to a variety of
disease targets and therapeutic indications. In addition, the Company intends to
use its approach on internal programs to discover new lead candidates and then
to outlicense them to third parties, retaining a larger economic interest in
such candidates.
Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents consist of cash and highly liquid investments
with maturities of three months or less when purchased. The Company generally
invests its excess cash in U.S. government securities. Short-term investments
are recorded at amortized cost plus accrued interest which approximates market
value.
The Company applies Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115)
to its investments. Under SFAS No. 115, the Company classifies its short-term
investments as "Available-for-Sale" and records such assets at estimated fair
value in the balance sheet, with unrealized gains and losses, if any, reported
in stockholders' equity. As of December 31, 1996 and September 30, 1997, the
cost of cash equivalents and short-term investments approximated estimated fair
value.
Concentration of Credit Risk
The Company invests its excess cash in debt instruments of financial
institutions and corporations with strong credit ratings. The Company has
established guidelines relative to diversification and maturities that maintain
safety and liquidity. The Company historically has not experienced any material
losses on its cash equivalents or short-term investments.
Property and Equipment
Property and equipment are carried at cost. Depreciation of equipment is
computed using the straight-line method over the estimated useful lives of the
assets, generally three to seven years. Leasehold improvements are amortized
over the shorter of the estimated useful lives of the assets or the remaining
term of the lease. Amortization of equipment under capital leases is reported
with depreciation of property and equipment.
Impairment of Long-Lived Assets
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of (SFAS No. 121), which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
adoption had no impact on the Company's financial statements.
F-7
<PAGE> 72
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128),
which supersedes APB Opinion No. 15. SFAS No. 128 replaces the presentation of
primary earnings per share (EPS) with "Basic EPS" which reflects only the
weighted-average common shares outstanding for the period. Companies with
complex capital structures, including the Company, will also be required to
present "Diluted EPS" that reflect the potential dilution, if any, of common
stock equivalents such as employee stock options and warrants to purchase common
stock. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997.
Revenues under Collaborative Agreements and Research and Development Costs
The Company currently generates revenue primarily through its collaborative
agreements, which provide for the analysis of data, design of informative
compound libraries and synthesis of compounds utilizing the Company's
proprietary technology. Contract research revenue is recognized at the time that
research activities are performed under the terms of the research contracts.
Contract payments are generally received in advance of the performance of the
related research activities. Such payments received in excess of amounts earned
are recorded as deferred contract research revenue. Technology access fees are
recognized as revenue when earned. These fees are nonrefundable, and the Company
has no future performance obligations related to such fees.
Net Loss Per Share
Historical net loss per share is computed using the weighted average number
of common shares outstanding during the periods presented. Common equivalent
shares resulting from stock options, warrants to purchase redeemable convertible
preferred stock and redeemable convertible preferred stock are excluded from the
computation as their effect would be antidilutive, except that the Securities
and Exchange Commission requires common and common share equivalents issued
during the twelve-month period prior to the initial filing of a proposed public
offering to be included in the calculation as if they were outstanding for all
periods presented (using the treasury stock method and the assumed initial
public offering price).
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 23, 1994
(INCEPTION) TO NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------- ------------------------ -----------------------
1994 1995 1996 1996 1997
-------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net loss per share.......................... $ (0.29) $ (2.33) $ (1.73) $ (1.51) $ (1.24)
========= ========= ========= ========= =========
Shares used in computing net loss per
share..................................... 2,406,794 2,869,475 2,962,113 2,962,113 2,962,113
========= ========= ========= ========= =========
</TABLE>
Pro Forma Net Loss Per Share
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of the redeemable convertible preferred stock,
which will convert to common stock upon completion of the Company's initial
public offering, using the as if-converted method from the original date of
issuance.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25),
F-8
<PAGE> 73
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and related Interpretations in accounting for its employee stock options. Under
APB 25, when the exercise price of the Company's employee stock options is not
less than the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The accompanying financial statements for the nine months ended September
30, 1996 are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
statement of the operating results and cash flows for such period.
Pro Forma Stockholders' Equity
In September 1997, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission for the Company to sell shares of its common stock in an initial
public offering. If the initial public offering contemplated by this Prospectus
is consummated under the terms presently anticipated, all outstanding shares of
redeemable convertible preferred stock at September 30, 1997 will automatically
convert into 7,754,933 common shares. The pro forma stockholders' equity does
not reflect the equity investments made in conjunction with the collaboration
agreements described in Note 10.
2. BALANCE SHEET INFORMATION
Investments
There were no realized gains or losses on the sale of securities for either
the period ended September 30, 1997 or the year ended December 31, 1996.
The amortized cost of debt securities at September 30, 1997, by contractual
maturity, are shown below. The amortized costs approximates fair value. Actual
maturities may differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations with out prepayment
penalties.
<TABLE>
<CAPTION>
COST
----------
<S> <C>
Available for sale:
Due in one year or less........................................ $3,610,293
Due in one to five years....................................... 504,407
----------
$4,114,700
==========
</TABLE>
F-9
<PAGE> 74
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
2. BALANCE SHEET INFORMATION (CONTINUED)
Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------- -------------
1995 1996 1997
--------- ---------- -------------
<S> <C> <C> <C>
Laboratory and computer equipment......... $ 670,948 $1,759,990 $ 3,055,611
Leasehold improvements.................... -- 1,373,465 1,689,685
Office furniture, fixtures and
equipment............................... 74,991 188,174 317,131
--------- ----------- -----------
745,939 3,321,629 5,062,427
Less accumulated depreciation and
amortization............................ (111,709) (422,474) (982,297)
--------- ----------- -----------
$ 634,230 $2,899,155 $ 4,080,130
========= =========== ===========
</TABLE>
3. NOTES PAYABLE
During 1996, the Company repaid a $100,000 non-interest bearing note with
cash and converted two notes payable totaling $440,000 and the related accrued
interest into 83,195 shares of Series Z redeemable convertible preferred stock.
4. COMMITMENTS
Leases
The Company leases its facilities under an operating lease agreement that
expires in May 2006. Rent expense was approximately $86,000, $383,000, $232,000
and $395,000 for the years ended December 31, 1995 and 1996, and the nine months
ended September 30, 1996 and 1997, respectively. Lease payments are subject to
future increases based upon the Consumer Price Index.
The Company leases certain equipment under capital lease obligations. Cost
and accumulated amortization of equipment under capital leases were $349,000 and
$104,000 at December 31, 1995, $3,054,000 and $349,000 at December 31, 1996 and
$4,578,000 and $845,000 at September 30, 1997, respectively.
F-10
<PAGE> 75
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
4. COMMITMENTS
Annual future minimum obligations for operating and capital leases as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- -----------
<S> <C> <C>
Three months ending December 31:
1997................................... $ 113,524 $ 358,431
Year ending December 31:
1998................................... 458,365 1,433,722
1999................................... 421,201 1,194,044
2000................................... 437,638 641,923
2001................................... 449,966 296,634
2002................................... 346,207 --
Thereafter....................................... 1,862,189 --
---------- -----------
Total minimum lease payments....................... $4,089,090 3,924,754
==========
Less amount representing interest.................. (525,398)
-----------
Present value of obligations under capital
leases........................................... 3,399,356
Less current portion............................... (1,021,946)
-----------
Long-term obligations under capital leases......... $ 2,377,410
===========
</TABLE>
Consulting Agreements
The Company has entered into various consulting agreements with members of
its Scientific Advisory Board and others for aggregate minimum annual fees of
approximately $118,000. The agreements are cancelable by either party with
limited notice. During the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1996 and 1997, the Company expensed approximately
$27,000, $43,000, $35,000 and $42,000, respectively, for fees and expense
reimbursements paid to these consultants.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Changes in Capitalization
In September 1997, the Company's Board of Directors approved the
reincorporation of the Company in Delaware which was accomplished through a
merger of the existing California corporation into a new Delaware corporation.
The ratio of exchange was four shares of the California corporation to one share
of the Delaware corporation. The number of authorized shares of the new Delaware
corporation are 40,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock. All share and per share amounts and stock option data have been
restated to retroactively give effect to the reincorporation and the related
change in shares outstanding.
F-11
<PAGE> 76
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
Redeemable Convertible Preferred Stock
A summary of redeemable convertible preferred stock issued and outstanding
is as follows:
<TABLE>
<CAPTION>
LIQUIDATION
SHARES PREFERENCE
---------- -----------
<S> <C> <C>
Series A.............................................. 250,000 $ 500,000
Series B.............................................. 556,669 1,670,000
Series C.............................................. 4,289,634 10,638,261
Series D.............................................. 2,467,310 9,869,205
Series Z.............................................. 133,195 266,389
--------- -----------
7,696,808 $22,943,855
========= ===========
</TABLE>
In 1994, the Company issued Series A and B redeemable convertible preferred
stock for cash at $2.00 and $3.00 per share, respectively. In October 1994, the
Company acquired certain intellectual property rights in exchange for 50,000
shares of the Company's Series Z redeemable convertible preferred stock valued
at $2.00 per share. During 1996, the Company converted two outstanding notes and
related accrued interest totalling $460,913 into 83,195 shares of Series Z
redeemable convertible preferred stock.
In August 1995, the Company received approximately $6.9 million in net
proceeds from the issuance of 2,808,702 shares of Series C redeemable
convertible preferred stock at $2.48 per share. Pursuant to the terms of certain
promissory notes, the Company converted $502,676 of principal and accrued
interest into 202,692 shares of Series C redeemable convertible preferred stock
at $2.48 per share. In April 1996, upon the achievement of certain milestones,
the Company received an additional $3.1 million in net proceeds from the
issuance of an additional 1,278,240 shares of Series C redeemable convertible
preferred stock at $2.48 per share.
In November 1996, the Company received approximately $9.9 million in net
proceeds from the issuance of 2,467,310 shares of Series D redeemable
convertible preferred stock at $4.00 per share.
At the option of the holder, the shares of Series A, B, C, D and Z
redeemable convertible preferred stock are convertible at any time into common
stock on a one-for-one basis, subject to certain anti-dilution adjustments. The
preferred shares automatically convert into common stock upon the earlier of: 1)
the closing of an underwritten public offering of common stock at not less than
$16.00 per common share and an aggregate offering price of not less than $12
million or 2) the written election of at least 70% of the preferred
stockholders. The preferred stockholders have voting rights equal to the common
shares they would own upon conversion. The Company has reserved 7,696,808 shares
of common stock for issuance upon conversion of the Series A, B, C, D and Z
redeemable convertible preferred stock.
The Company's Amended and Restated Articles of Incorporation provide for
redemption of Series A, B, C and D redeemable convertible preferred stock at any
time after December 31, 1998, at the request of at least 70% of the holders of
such series. The redemption price is equal to the original issue price plus any
declared but unpaid dividends.
The preferred shareholders are entitled to noncumulative annual dividends
of $0.16, $0.24, $0.20, $0.32 and $0.16 per share of Series A, B, C, D and Z
redeemable convertible preferred stock, respectively, if and when such dividends
are declared by the Board of Directors. No dividends have been declared to date.
In connection with employment agreements, certain employees will be
entitled to receive options to purchase the Company's Series J convertible
preferred stock upon the achievement of certain milestones.
F-12
<PAGE> 77
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
Some of the milestones were met during 1997, and in connection therewith, the
Company issued 58,125 shares of Series J convertible preferred stock to the
employees.
1995 Stock Option/Stock Issuance Plan
In 1995, the Board of Directors adopted the 1995 Stock Option/Stock
Issuance Plan (the Plan), under which 2,355,069 shares of common stock are
reserved for issuance upon exercise of options or stock issuances by the Company
to certain employees of and consultants to the Company. Under the stock option
program, options may be designated as incentive stock options or nonstatutory
stock options. Options under the Plan have a term of up to ten years from the
date of grant. The exercise price of incentive stock options must equal at least
the fair market value on the date of grant, and the exercise price of
nonstatutory stock options may be no less than 85% of the fair market value on
the date of grant. Options generally vest over four to five years.
The Company recorded $1,401,075 of deferred compensation for options
granted during the nine months ended September 30, 1997, representing the
difference between the option exercise price and the deemed fair value for
financial statement presentation purposes. The Company is amortizing the
deferred compensation over the vesting period of the options. The Company
recorded $75,476 of compensation expense during the nine months ended September
30, 1997.
The Company recorded $53,474 of additional deferred compensation
representing the difference between the option exercise price and the deemed
fair value for financial statement presentation purposes for stock options
granted in October 1997.
Under the stock issuance program, selected employees and consultants may be
issued shares of common stock at no less than 85% of the fair market value on
the date of grant. The vesting schedule for each share issuance is determined by
the Board of Directors as Plan Administrator. The Company has the option to
repurchase, at the original issue price, the unvested shares in the event of
termination of service. At September 30, 1997, 901,658 shares were subject to
repurchase by the Company.
Information with respect to the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Granted............................................ 562,980 $ 0.30
Exercised.......................................... -- --
Cancelled.......................................... -- --
----------
Balance at December 31, 1995......................... 562,980 0.30
Granted............................................ 531,479 0.30
Exercised.......................................... (72,589) 0.30
Cancelled.......................................... (12,536) 0.30
----------
Balance at December 31, 1996......................... 1,009,334 0.30
Granted............................................ 621,813 2.19
Exercised.......................................... (1,159,377) 0.36
Cancelled.......................................... (30,074) 0.33
---------- ------
Balance at September 30, 1997........................ 441,696 $ 2.81
========= ==========
</TABLE>
At September 30, 1997, options to purchase 441,696 shares were exercisable
and 681,407 shares remain available for grant.
F-13
<PAGE> 78
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
Following is a further breakdown of the options outstanding as of September
30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED WEIGHTED EXERCISE
RANGE OF AVERAGE AVERAGE PRICE OF
EXERCISE OPTIONS REMAINING EXERCISE OPTIONS OPTIONS
PRICES OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE EXERCISABLE
- ------------- ----------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.30 - $0.40 107,195 8.54 $ 0.33 107,195 $0.33
$1.00 29,375 9.81 1.00 29,375 1.00
$2.00 - $3.00 28,879 8.45 2.43 28,879 2.43
$4.00 276,247 4.90 4.00 276,247 4.00
------- ---- ----- ------- -----
441,696 6.37 $ 2.81 441,696 $2.81
======= ==== ===== ======= =====
</TABLE>
Adjusted pro forma information regarding net loss and net loss per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options and stock purchase plan under the fair value
method of SFAS 123. The fair value for these options was estimated at the date
of grant using the "Minimum Value" method for option pricing with the following
assumptions for 1995, 1996 and 1997: risk-free interest rates of 6.50%; dividend
yield of 0%; and a weighted-average expected life of the options of five years.
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options are amortized to expense over the vesting period. The Company's
adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Adjusted pro forma net loss............ $(6,678,067) $(5,137,253) $(3,692,783)
Adjusted pro forma net loss per
share................................ $ (2.33) $ (0.66) $ (0.45)
</TABLE>
The weighted-average fair value of options granted during 1995 and 1996 was
$.08 and during 1997 was $0.56.
The pro forma effect on net loss for 1995, 1996 and 1997 is not likely to
be representative of the pro forma effects on reported net income or loss in
future years because these amounts reflect less than four year of vesting.
Warrants
At September 30, 1997, the Company has issued warrants to purchase an
aggregate of 130,728 shares of redeemable convertible preferred stock at prices
ranging from $2.00 to $2.48 per share. The warrants are exercisable in whole or
in part through various dates.
The Company also has issued warrants to purchase 8,750 shares of common
stock at $0.30 per share. The warrants are exercisable in whole or in part at
any time at or prior to June 2000.
6. NOTES RECEIVABLE FROM EMPLOYEE/STOCKHOLDERS
During 1995, the Company lent $150,000 to an employee and stockholder for
the purchase of a residence in connection with the individual's employment
agreement. The note bears interest at approximately 5.8% and matures on the
earlier of (i) September 5, 2000, (ii) 30 days following cessation of
employment, (iii) 180 days following the date at which the Company completes a
successful initial public offering of shares
F-14
<PAGE> 79
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
6. NOTES RECEIVABLE FROM EMPLOYEE/STOCKHOLDERS (CONTINUED)
of its common stock, or (iv) the date on which more than 50% of the Company's
outstanding shares of common stock are acquired by a single purchaser or a group
of purchasers. The note is secured by 87,500 shares of the Company's common
stock owned by the employee at the date of the note, plus any capital stock
thereafter acquired.
In August 1996, the Company lent $66,125 to an employee for relocation in
connection with employment, which is secured by a deed of trust. The loan is
represented by a promissory note which is due and payable on the earlier of
August 28, 1999 or the occurrence of certain events, such as expiration of the
30-day period following the date the individual ceases to be a full time
employee of the Company. The loan bears no interest, and principal payments of
$22,000 have been made to date.
During 1997, the Company instituted an employee loan program whereby the
proceeds of the loan are used to purchase common stock from the exercise of the
employee's stock options. Under the program, the employee pays 25% of the total
exercise price, and the Company loans the employee the remaining 75% of the
purchase price. The loans bear interest at an adjustable rate that is the
minimum rate allowable by the Internal Revenue Service, subject to quarterly
adjustments by the Company. The loans will be repaid through 3 equal payments on
the first three anniversary dates of the loan. The Company has $337,000 in loans
outstanding at September 30, 1997.
7. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
Teijin Limited
In March 1996, the Company entered into a collaborative agreement with
Teijin Limited ("Teijin") providing for a one-year program on a G-protein
coupled receptor target. In March 1997, the Company and Teijin amended their
agreement to extend the collaboration for an additional year. While the initial
focus of the collaboration was lead optimization, the effort was redirected to
lead evolution during the course of the research. Under the agreement, Teijin
made an upfront payment to CombiChem and agreed to provide research funding and
milestone payments upon the achievement of certain preclinical and clinical
milestones. Teijin also committed internal resources to the discovery effort.
Teijin will make royalty payments on products resulting from the collaboration.
CombiChem retains the rights to the compounds arising under this collaboration
in North and South America; Teijin has rights to these compounds in Asia and
Europe with a right of first negotiation to acquire CombiChem's rights. Under
the original agreement, Teijin has rights to expand or extend the program for up
to two successive one-year terms. Either party may terminate the agreement in
the event of a material breach remaining uncured for 60 days. As of September
30, 1997, Teijin had paid the Company an aggregate of $1.5 million.
Roche Bioscience, a division of Syntex (U.S.A.) Inc.
In October 1996, the Company entered into a collaborative agreement with
Roche Bioscience providing for a broad two-year program to perform research
against three initial targets, including a protein-protein interaction, an
enzyme and a receptor, with an option to add additional targets. Roche
Bioscience can elect one of the approaches -- lead generation, lead evolution or
lead optimization -- for each research program against each collaboration
target. A program may be initiated at any time during the term of the
collaboration, thereby extending the term to allow for completion of each
program. Under the agreement, Roche Bioscience made an upfront payment to
CombiChem and agreed to provide research funding and to make milestone payments
upon the achievement of certain preclinical and clinical milestones. Roche
Bioscience will make royalty payments on worldwide sales of products resulting
from the collaboration. Upon completion of the first year of the agreement,
Roche Bioscience may terminate the collaboration at any time upon six months'
prior
F-15
<PAGE> 80
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
7. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS (CONTINUED)
written notice. Certain special conditions could also allow Roche Bioscience to
terminate with 45 days' prior written notice. As of September 30, 1997, Roche
Bioscience had paid the Company an aggregate of $4.0 million.
Sumitomo Pharmaceuticals Co., Ltd.
In August 1997, the Company entered into a collaborative agreement with
Sumitomo Pharmaceuticals, Co., Ltd. (Sumitomo) providing for a two-year lead
evolution program on a target that is believed to play a fundamental role in
osteoarthritis and rheumatoid arthritis. Under the agreement, Sumitomo made an
upfront payment and agreed to provide research funding and milestone payments
upon the achievement of certain preclinical and clinical milestones. Sumitomo
will make royalty payments on worldwide sales of products resulting from the
collaboration. Sumitomo may extend the research period for up to four successive
six-month periods upon mutual agreement. The agreement may be terminated by
either party 90 days following an uncured material breach. As of September 30,
1997, Sumitomo had paid the Company an aggregate of $3.3 million.
8. BENEFIT PLAN
Company sponsors a benefit plan which covers employees who meet certain age
and service requirements. Employees may contribute a portion of their earnings
each plan year subject to certain Internal Revenue Service limitations. The
Company made no contributions to the Plan for the years ended December 31, 1994,
1995 and 1996, and the nine months ended September 30, 1996 and 1997,
respectively.
9. INCOME TAXES
At December 31, 1996, the Company had federal and California income tax net
operating loss carryforwards of approximately $11,694,000 and $11,652,000,
respectively.
The federal and California tax loss carryforwards will begin to expire in
2009 and 2002, respectively, unless previously utilized. The Company also has
federal and California research tax credit carryforwards of approximately
$104,000 and $144,000, respectively, which will begin to expire in 2010 unless
previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use
of the Company's net operating loss and credit carryforwards may be limited
because of cumulative changes in ownership of more than 50% which occurred
during 1995. However, the Company does not believe such limitation will have a
material effect upon the utilization of these carryforwards.
Significant components of the Company's deferred tax assets are shown
below. A valuation allowance, which was increased by $2,253,000 in 1996, has
been recognized to offset the deferred tax assets as of December 31, 1995 and
1996 as realization of such assets is uncertain.
F-16
<PAGE> 81
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
9. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 2,651,000 $ 4,792,000
Research and development credits................ 179,000 198,000
Other........................................... 29,000 122,000
----------- -----------
Total deferred tax assets......................... 2,859,000 5,112,000
Valuation allowance for deferred tax assets....... (2,859,000) (5,112,000)
----------- -----------
Net deferred tax assets........................... $ -- $ --
=========== ===========
</TABLE>
10. SUBSEQUENT EVENTS
Collaborative Agreements
ImClone Systems Incorporated
In October 1997, the Company entered into a collaborative agreement with
ImClone Systems Incorporated (ImClone) providing for a two-year program to
identify and characterize novel small molecule inhibitors to multiple targets
for development in oncology. The agreement provides for ImClone's access to the
Company's Universal Informer Library and Virtual Library under the supervision
of the research management committee composed of representatives of the Company
and ImClone. Under the terms of the agreement, ImClone will provide the Company
with research support payments, milestone payments upon the achievement of
certain program objectives and royalties on worldwide product sales of
therapeutic products that may arise out of the collaboration. The agreement may
be terminated by either party 90 days following an uncured material breach or by
ImClone within 30 days prior to the one-year anniversary by providing 90 days'
prior written notice. In connection with the collaborative agreement, ImClone
made an equity investment in the Company.
Athena Neurosciences, Inc., a wholly owned subsidiary of Elan Corporation, plc
In October 1997, the Company entered into a collaborative agreement with
Athena Neurosciences, Inc., a wholly owned subsidiary of Elan Corporation, plc.
(Elan/Athena) providing for a three-year program to discover novel therapeutic
compounds for treatment of central nervous system conditions. The agreement
provides for Elan/Athena's access to the Universal Informer Library as deemed
necessary by the research management committee composed of Elan/Athena and
CombiChem representatives. Under the agreement, Elan/Athena will provide the
Company with upfront and research support payments, as well as milestone
payments upon the achievement of pre-determined objectives. Elan/Athena will
also make royalty payments on worldwide sales of products resulting from the
collaboration. The agreement may be terminated by either party 90 days following
an uncured material breach or by Elan/Athena after the one-year anniversary upon
90 days prior written notice. In connection with the collaborative agreement,
Elan International Services Ltd., an affiliate of Elan/Athena, made an equity
investment in the Company.
1997 Stock Incentive Plan
The Company's 1997 Stock Incentive Plan (the 1997 Plan) is intended to
serve as the successor equity incentive program to the Company's 1995 Stock
Option/Stock Issuance Plan, as amended (the "Predecessor Plan"). The 1997 Plan
was adopted by the Board and the stockholders on October 7, 1997, and a total of
1,080,603 shares of Common Stock have been authorized for issuance under the
1997 Plan. Under the stock option program, options may be designated as
incentive stock options or nonstatutory stock options. Options under the plan
have a term of up to ten years from the date of grant. The exercise price of
options shall be
F-17
<PAGE> 82
COMBICHEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
10. SUBSEQUENT EVENTS (CONTINUED)
fixed by the plan administrator, but shall not be less than 100% of the fair
market value per share of common stock on the option grant dates.
1997 Employee Stock Purchase Plan
In October 1997, the Company adopted the 1997 Employee Stock Purchase Plan
(the "Purchase Plan") and reserved 150,000 shares for issuance, thereunder. The
Purchase Plan permits eligible employees of the Company to purchase shares of
Common Stock, at semi-annual intervals, through periodic payroll deductions.
Payroll deductions may not exceed 10% of the participant's base salary, and the
purchase price will not be less than 85% of the lower of the fair market value
of the stock at either the beginning or the end of the semi-annual intervals.
F-18
<PAGE> 83
[DEPICTIONS OF ACTIVE SITES AND COMPOUNDS]
Using only the structures of compounds screened against a known HIV
protease target, CombiChem's Discovery Engine(TM) has generated a hypothesis (a
computational model), as depicted here, which illustrates potentially important
characteristics of the HIV protease active site.
X-ray crystallography has determined the actual three-dimensional structure
of the active site of the HIV protease target, as shown here.
CombiChem's computer-generated hypothesis has accurately identified the
important characteristics of the HIV protease active site in detail as
demonstrated by the lock-and-key structural fit depicted in this overlay.
<PAGE> 84
[COMBICHEM LOGO]
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates,
except for the registration fee, the Nasdaq National Market filing fee and the
NASD fee.
<TABLE>
<S> <C>
Registration fee.................................................. $ 10,194
Nasdaq National Market fee........................................ 50,000
NASD fee.......................................................... 3,864
Blue Sky fees and expenses........................................ 10,000
Printing and engraving expenses................................... 180,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 125,000
Transfer Agent and Registrar fees................................. 5,000
Miscellaneous expenses............................................ 65,942
--------
TOTAL................................................... $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of the Company under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation Law.
Article VII, Section 1 of the Restated Bylaws of the Company provides that
the Company shall indemnify its directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law. The rights to
indemnity thereunder continue as to a person who has ceased to be a director,
officer, employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
executive officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of the Company (or was serving at the Company's
request as a director or officer of another corporation) shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Company as authorized by the relevant section
of the Delaware General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article V, Section (A) of the Company's Restated Certificate of Incorporation
provides that a director of the Company shall not be personally liable for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or acts or
omissions that involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived any improper personal benefit.
The Company has entered into indemnification agreements with each of its
directors and executive officers. Generally, the indemnification agreements
attempt to provide the maximum protection permitted by Delaware law as it may be
amended from time to time. Moreover, the indemnification agreements provide for
certain additional indemnification. Under such additional indemnification
provisions, however, an individual
II-1
<PAGE> 86
will not receive indemnification for judgments, settlements or expenses if he or
she is found liable to the Company (except to the extent the court determines he
or she is fairly and reasonably entitled to indemnity for expenses), for
settlements not approved by the Company or for settlements and expenses if the
settlement is not approved by the court. The indemnification agreements provide
for the Company to advance to the individual any and all reasonable expenses
(including legal fees and expenses) incurred in investigating or defending any
such action, suit or proceeding. In order to receive an advance of expenses, the
individual must submit to the Company copies of invoices presented to him or her
for such expenses. Also, the individual must repay such advances upon a final
judicial decision that he or she is not entitled to indemnification.
The Company has purchased directors' and officers' liability insurance. The
Company intends to enter into additional indemnification agreements with each of
its directors and executive officers to effectuate these indemnity provisions.
The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by
which the Underwriters have agreed to indemnify the Company, each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act, each director of the Company, and each officer of the Company who signs
this Registration Statement, with respect to information furnished in writing by
or on behalf of the Underwriters for use in the Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 30, 1994, the Company has sold and issued the following
unregistered securities (which numbers have not been adjusted for the
one-for-four reverse stock split effected in October 1997).
(1) From September 30, 1994 to September 30, 1997, the Company issued an
aggregate of 6,694,638 options to purchase Common Stock with exercise
prices ranging from $0.062 to $0.25 per share under the Predecessor Plan
and an aggregate of 4,927,858 shares of Common Stock were issued through
the exercise of options granted under the Predecessor Plan for an aggregate
exercise price of $405,241. For additional information concerning these
transactions, reference is made to the information contained under the
caption "Management -- Benefit Plans" in the form of the Prospectus
included herein.
(2) On October 12, 1995, the Company issued 200,000 shares of Series Z
Preferred Stock to Sydney Brenner for an aggregate consideration of
$100,000.
(3) On October 18, 1994, the Company issued 500,000 shares of Common Stock to
Robert A. Curtis, former Chief Executive Officer of the Company, at $.01
per share, of which 229,160 were vested as of the date of the termination
of his employment in October 1995.
(4) On October 18, 1994, the Company issued an aggregate of 2,500 shares of
Common Stock to one investor for an aggregate consideration of $25.
(5) On November 1, 1994, the Company issued an aggregate of 400,000 shares of
Series A Preferred Stock to certain funds advised by Sequoia Capital for an
aggregate consideration of $200,000.
(6) From November 23, 1994 through January 15, 1995, the Company issued an
aggregate of 2,226,667 shares of Series B Preferred Stock to certain funds
advised by Sequoia Capital, Forward Ventures II, L.P. and an individual
investor for an aggregate consideration of $1,670,000.
(7) On November 1, 1994, the Company issued an aggregate of 100,000 shares of
Common Stock to certain venture funds advised by Sequoia Capital for an
aggregate consideration of $5,000.
(8) On November 8, 1994, the Company issued an aggregate of 175,000 shares of
Common Stock to one investor for an aggregate consideration of $8,750.
(9) On November 18, 1994, the Company issued an aggregate of 10,000 shares of
Common Stock to one investor for an aggregate consideration of $500.
II-2
<PAGE> 87
(10) In December 1994, the Company issued a warrant to purchase 83,655 shares of
Series Z Preferred Stock to Comdisco, Inc. at an exercise price of $0.50
per share in connection with an equipment lease financing.
(11) From January 1, 1995 through April 24, 1995, the Company issued an
aggregate of 130,000 shares of Common Stock to eight investors for an
aggregate consideration of $9,750.
(12) On March 20, 1995, the Company issued an aggregate of 400,000 shares of
Common Stock to The Scripps Research Institute for an aggregate
consideration of $40,000.
(13) From April 25, 1995 through July 30, 1995, the Company issued an aggregate
of 650,000 shares of Common Stock to three investors for an aggregate
consideration of $48,750.
(14) On June 15, 1995, the Company issued a warrant to purchase 35,000 shares of
Common Stock to LJL BioSystems, Inc. at an exercise price of $0.075.
(15) In connection with an asset purchase agreement dated August 4, 1995, the
Company issued an aggregate of 332,777 shares of Series Z Preferred Stock
to Molecular Simulations, Inc. from June 1996 through July 1996 in
consideration for certain technology rights.
(16) On August 5, 1995, the Company issued 6,000 shares of Common Stock to Ken
Rubenstein at $.075 per share in connection with a consulting agreement.
(17) On August 17, 1995, August 25, 1995 and September 11, 1995, the Company
issued an aggregate of 12,045,576 shares of Series C Preferred Stock to
various venture capital funds and certain other investors for an aggregate
consideration of $7,468,257.
(18) On August 17, 1995, the Company issued warrants to purchase 120,968 shares
of Series C Preferred Stock at an exercise price of $0.62 per share.
(19) On September 7, 1995, the Company issued 8,065 shares of Series C Preferred
Stock to one investor for an aggregate consideration of $5,000.
(20) In December 1995, the Company issued an aggregate of 232,500 shares of
Series J Preferred Stock to three employees upon the exercise of options to
purchase Series J Preferred Stock at an exercise price of $0.10.
(21) On April 9, 1996, the Company issued an aggregate of 5,104,845 shares of
Series C Preferred Stock to various venture capital funds and certain other
investors for an aggregate consideration of $3,165,003.
(22) In April 1996 and June 1996, the Company issued warrants to purchase an
aggregate of 240,321 shares of Series C Preferred Stock to Comdisco, Inc.
at an exercise price of $0.62 per share in connection with an equipment
lease financing.
(23) In May 1996, the Company issued warrants to purchase an aggregate of
112,903 shares of Series Z Preferred Stock to Silicon Valley Bank and
MMC/GATX Partnership No. 1 at an exercise price of $0.62 per share in
connection with an equipment lease financing.
(24) On November 15, 1996, the Company issued an aggregate of 9,869,205 shares
of Series D Preferred Stock to various venture capital funds and certain
other investors for an aggregate consideration of $9,869,205.
(25) On January 23, 1997, the Company issued an aggregate of 5,000 shares of
Common Stock to one investor at $0.10 per share pursuant to a Restricted
Stock Issuance Agreement for an aggregate consideration of $500.
(26) On June 11, 1997, the Company issued an aggregate of 40,000 shares of
Common Stock to one investor at $0.10 per share for an aggregate
consideration of $4,000.
(27) On July 1, 1997, the Company issued an aggregate of 45,000 shares of Common
Stock to the University of Pittsburgh for technology rights valued at
$11,250.
II-3
<PAGE> 88
(28) On October 7, 1997, the Company issued an aggregate of 50,000 shares of
Common Stock to two investors for past services rendered to the Company.
(29) On October 10, 1997, the Company issued an aggregate of 1,000,000 shares of
Common Stock to ImClone Systems Incorporated in conjunction with a
collaboration agreement.
(30) On October 15, 1997, the Company issued an aggregate of 4,000,000 shares of
Common Stock to Elan International Services Ltd., in conjunction with a
collaboration agreement.
The sales and issuances of securities in the above transactions were deemed
to be exempt under the Act by virtue of Section 4(2) thereof and/or Regulation D
and Rule 701 promulgated thereunder as transactions not involving any public
offering. The purchasers in each case represented their intention to acquire the
securities for investment only and not with a view to the distribution thereof.
Appropriate legends were affixed to the stock certificates issued in such
transactions. Similar representations of investment intent were obtained and
similar legends imposed in connection with any subsequent transfers of any such
securities. The Company believes that all recipients had adequate access,
through employment or other relationships, to information about the Company to
make an informed investment decision.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Form of Amended and Restated Certificate of Incorporation of the Company to
become effective immediately prior to the Offering.
3.3 Bylaws of the Company, as amended.
3.4 Form of Restated Bylaws of the Company to be effective upon completion of the
Offering.
4.1+ Form of Certificate for Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common Stock being
registered.
10.1 Preferred Stock Purchase Agreement for Series A Preferred Stock between the
Company and Forward Ventures II, L.P., dated August 26, 1994.
10.2 Preferred Stock Purchase Agreement for Shares of Series Z Preferred Stock between
the Company and Sydney Brenner, dated October 14, 1994.
10.3 Stock Purchase Agreement for Shares of Series A Preferred Stock and Common Stock
between the Company and the investors listed on Exhibit A thereto, dated November
1, 1994.
10.4 Stock Purchase Agreement Series B Preferred Stock between the Company and the
purchasers listed on Exhibit A thereto, dated November 29, 1994.
10.5 Series C Preferred Stock Purchase Agreement between the Company and the
purchasers listed on Schedule A thereto, dated August 17, 1995.
10.6 Stock Purchase Agreement for Series C Preferred Stock between the Company and
Todd Schmidt dated September 7, 1995.
10.7* Supplemental Purchase Agreement between the Company and the purchasers on
Schedule A thereto, dated April 8, 1996.
10.8* Series D Preferred Stock Purchase Agreement between the Company and the
purchasers listed on Schedule A thereto, dated November 15, 1996.
10.9 Amended and Restated Investors' Rights Agreement between the Company and the
stockholders listed on Schedule A thereto, dated November 15, 1996.
10.10 Series J Preferred Stock Purchase Agreement between the Company and Steve Teig,
dated June 10, 1997.
</TABLE>
II-4
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <S>
10.11 Series J Preferred Stock Purchase Agreement between the Company and Jonathan
Greene, dated June 11, 1997.
10.12 Series J Preferred Stock Purchase Agreement between the Company and Andrew
Smellie, dated June 11, 1997.
10.13 Warrant Agreement to Purchase Shares of the Series Z Preferred Stock, as amended
between the Company and Comdisco, Inc., dated December 20, 1994.
10.14 Common Stock Purchase Warrant between the Company and LJL BioSystems, Inc., dated
June 15, 1995.
10.15 Form of Warrant to Purchase Shares of Series C Preferred Stock between the
Company and the purchasers listed on Schedule A thereto, dated August 17, 1995.
10.16 Form of Warrant Agreement to Purchase Shares of Series C Preferred Stock of the
Company, between the Company and Comdisco, Inc. in the amounts listed on Schedule
A thereto.
10.17 Form of Warrant to Purchase Shares of Series Z Preferred Stock between the
Company and the purchasers listed on Schedule A thereto, dated May 20, 1996.
10.18 Master Lease Agreement with the Company and Comdisco Inc., dated November 6,
1994, Schedule VL-1, dated November 11, 1994, Schedule VL-2 dated April 15, 1996
and Schedule VL-3 dated April 15, 1996.
10.19* Collaboration Agreement between the Company and Teijin Limited, dated March 29,
1996, as amended.
10.20* Collaborative Research and License Agreement between the Company and Roche
Bioscience, dated October 25, 1996.
10.21* Research and Technology Development Agreement between the Company and Sumitomo
Pharmaceuticals Co., Ltd., dated August 18, 1997.
10.22*+ Collaborative Research and License Agreement between the Company and ImClone
Systems Incorporated, dated October 10, 1997.
10.23*+ Collaborative Research and License Agreement between the Company and Athena
Neurosciences, Inc., dated October 15, 1997.
10.24 Full Recourse Secured Promissory Note and Stock Pledge Agreement between the
Company and Peter Myers, dated September 5, 1995.
10.25 Promissory Note Secured by Deed of Trust between the Company and John Saunders,
dated August 30, 1996.
10.26 Promissory Note between the Company and Vicente Anido, Jr., dated February 24,
1997.
10.27 Pledge Agreement between the Company and Vicente Anido, Jr., dated February 24,
1997.
10.28 Promissory Note Secured by Stock Pledge Agreement between the Company and Vicente
Anido, Jr., dated June 6, 1997
10.29 Stock Pledge Agreement between the Company and Vicente Anido, Jr., dated June 6,
1997.
10.30 Employment Agreement with Peter Myers, dated March 1, 1995.
10.31 Employment Agreement with John Saunders, dated January 1, 1996.
10.32 Employment Agreement with Steven Teig, dated July 1, 1995.
10.33 Employment Agreement with Vicente Anido, Jr., dated March 14, 1996.
10.34 Employment Agreement with Lee R. McCracken, dated May 13, 1996.
10.35 Employment Letter with Karin Eastham, dated March 14, 1997.
10.36 Standard Industrial/Commercial Single-Tenant Lease between the Company and
Campson corporation, dated December 22, 1995.
10.37 Standard Office Lease-Full Service between the Company and Nearon Enterprises,
LLC, dated October 24, 1996.
10.38 Lease Agreement between Harbor Investment Partners and the Company, dated October
6, 1997.
</TABLE>
II-5
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <S>
10.39 1995 Stock Option/Stock Issuance Plan.
10.40 1995 Stock Option/Stock Issuance Plan Form of Notice of Grant.
10.41 1995 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.42 1995 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.43 1995 Stock Option/Stock Issuance Plan Form of Restricted Stock Issuance
Agreement.
10.44 1997 Stock Incentive Plan.
10.45 1997 Employee Stock Purchase Plan.
10.46 Form of Indemnification Agreement between the Company and each of its directors.
10.47 Form of Indemnification Agreement between the Company and each of its officers.
11.1 Statement of Computation of pro forma net loss per share.
23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as
Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see page II-8).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ To be filed by amendment.
* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant to
the Company's Application Requesting Confidential Treatment under Rule 406
under the Securities Act.
(b) Financial Statement Schedules included separately in the Registration
Statement.
All other schedules are omitted because they are not required, are not
applicable or the information is included in the Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned hereby undertakes 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 14, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(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 the registrant pursuant to Rule 424(b)(1) or
(4) or
II-6
<PAGE> 91
497(h) under 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 such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, County of San
Diego, State of California, on the 15th day of October, 1997.
COMBICHEM, INC.
By: /s/ VICENTE ANIDO, JR.
------------------------------------
Vicente Anido, Jr.
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Vicente Anido, Jr. and Mr. Pierre Lamond, or
either of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any registration
statement related to this Registration Statement and filed pursuant to Rule 462
under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ----------------------------------- -------------------
<S> <C> <C>
/s/ VICENTE ANIDO, JR. President, Chief Executive Officer October 15, 1997
- ----------------------------------- and Director (Principal Executive
(Vicente Anido, Jr.) Officer)
Vice President of October 15, 1997
Finance and Administration and
Chief
/s/ KARIN EASTHAM Financial Officer (Principal
- ----------------------------------- Financial
(Karin Eastham) and Accounting Officer)
/s/ PIERRE LAMOND Chairman of the Board and Director October 15, 1997
- -----------------------------------
(Pierre Lamond)
/s/ PETER L. MYERS Director October 15, 1997
- -----------------------------------
(Peter L. Myers)
/s/ PHILIPPE O. CHAMBON Director October 15, 1997
- -----------------------------------
(Philippe O. Chambon)
/s/ ARTHUR REIDEL Director October 15, 1997
- -----------------------------------
(Arthur Reidel)
/s/ WILLIAM SCOTT Director October 15, 1997
- -----------------------------------
(William Scott)
</TABLE>
II-8
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- --------------------------------------------------------------------- ------------
<C> <S> <C>
1.1+ Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Form of Amended and Restated Certificate of Incorporation of the
Company to become effective immediately prior to the Offering.
3.3 Bylaws of the Company, as amended.
3.4 Form of Restated Bylaws of the Company to be effective upon
completion of the Offering.
4.1+ Form of Certificate for Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common
Stock being registered.
10.1 Preferred Stock Purchase Agreement for Series A Preferred Stock
between the Company and Forward Ventures II, L.P., dated August 26,
1994.
10.2 Preferred Stock Purchase Agreement for Shares of Series Z Preferred
Stock between the Company and Sydney Brenner, dated October 14, 1994.
10.3 Stock Purchase Agreement for Shares of Series A Preferred Stock and
Common Stock between the Company and the investors listed on Exhibit
A thereto, dated November 1, 1994.
10.4 Stock Purchase Agreement Series B Preferred Stock between the Company
and the purchasers listed on Exhibit A thereto, dated November 29,
1994.
10.5 Series C Preferred Stock Purchase Agreement between the Company and
the purchasers listed on Schedule A thereto, dated August 17, 1995.
10.6 Stock Purchase Agreement for Series C Preferred Stock between the
Company and Todd Schmidt dated September 7, 1995.
10.7* Supplemental Purchase Agreement between the Company and the
purchasers on Schedule A thereto, dated April 8, 1996.
10.8* Series D Preferred Stock Purchase Agreement between the Company and
the purchasers listed on Schedule A thereto, dated November 15, 1996.
10.9 Amended and Restated Investors' Rights Agreement between the Company
and the stockholders listed on Schedule A thereto, dated November 15,
1996.
10.10 Series J Preferred Stock Purchase Agreement between the Company and
Steve Teig, dated June 10, 1997.
10.11 Series J Preferred Stock Purchase Agreement between the Company and
Jonathan Greene, dated June 11, 1997.
10.12 Series J Preferred Stock Purchase Agreement between the Company and
Andrew Smellie, dated June 11, 1997.
10.13 Warrant Agreement to Purchase Shares of the Series Z Preferred Stock,
as amended between the Company and Comdisco, Inc., dated December 20,
1994.
10.14 Common Stock Purchase Warrant between the Company and LJL BioSystems,
Inc., dated June 15, 1995.
10.15 Form of Warrant to Purchase Shares of Series C Preferred Stock
between the Company and the purchasers listed on Schedule A thereto,
dated August 17, 1995.
10.16 Form of Warrant Agreement to Purchase Shares of Series C Preferred
Stock of the Company, between the Company and Comdisco, Inc. in the
amounts listed on Schedule A thereto.
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- --------------------------------------------------------------------- ------------
<C> <S> <C>
10.17 Form of Warrant to Purchase Shares of Series Z Preferred Stock
between the Company and the purchasers listed on Schedule A thereto,
dated May 20, 1996.
10.18 Master Lease Agreement with the Company and Comdisco Inc., dated
November 6, 1994, Schedule VL-1, dated November 11, 1994, Schedule
VL-2 dated April 15, 1996 and Schedule VL-3 dated April 15, 1996.
10.19* Collaboration Agreement between the Company and Teijin Limited, dated
March 29, 1996, as amended.
10.20* Collaborative Research and License Agreement between the Company and
Roche Bioscience, dated October 25, 1996.
10.21* Research and Technology Development Agreement between the Company and
Sumitomo Pharmaceuticals Co., Ltd., dated August 18, 1997.
10.22*+ Collaborative Research and License Agreement between the Company and
ImClone Systems Incorporated, dated October 10, 1997.
10.23*+ Collaborative Research and License Agreement between the Company and
Athena Neurosciences, Inc., dated October 15, 1997.
10.24 Full Recourse Secured Promissory Note and Stock Pledge Agreement
between the Company and Peter Myers, dated September 5, 1995.
10.25 Promissory Note Secured by Deed of Trust between the Company and John
Saunders, dated August 30, 1996.
10.26 Promissory Note between the Company and Vicente Anido, Jr., dated
February 24, 1997.
10.27 Pledge Agreement between the Company and Vicente Anido, Jr., dated
February 24, 1997.
10.28 Promissory Note Secured by Stock Pledge Agreement between the Company
and Vicente Anido, Jr., dated June 6, 1997
10.29 Stock Pledge Agreement between the Company and Vicente Anido, Jr.,
dated June 6, 1997.
10.30 Employment Agreement with Peter Myers, dated March 1, 1995.
10.31 Employment Agreement with John Saunders, dated January 1, 1996.
10.32 Employment Agreement with Steven Teig, dated July 1, 1995.
10.33 Employment Agreement with Vicente Anido, Jr., dated March 14, 1996.
10.34 Employment Agreement with Lee R. McCracken, dated May 13, 1996.
10.35 Employment Letter with Karin Eastham, dated March 14, 1997.
10.36 Standard Industrial/Commercial Single-Tenant Lease between the
Company and Campson corporation, dated December 22, 1995.
10.37 Standard Office Lease-Full Service between the Company and Nearon
Enterprises, LLC, dated October 24, 1996.
10.38 Lease Agreement between Harbor Investment Partners and the Company,
dated October 6, 1997.
10.39 1995 Stock Option/Stock Issuance Plan.
10.40 1995 Stock Option/Stock Issuance Plan Form of Notice of Grant.
10.41 1995 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.42 1995 Stock Option/Stock Issuance Plan Form of Stock Purchase
Agreement.
10.43 1995 Stock Option/Stock Issuance Plan Form of Restricted Stock
Issuance Agreement.
10.44 1997 Stock Incentive Plan.
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- --------------------------------------------------------------------- ------------
<C> <S> <C>
10.45 1997 Employee Stock Purchase Plan.
10.46 Form of Indemnification Agreement between the Company and each of its
directors.
10.47 Form of Indemnification Agreement between the Company and each of its
officers.
11.1 Statement of Computation of pro forma net loss per share.
23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their
opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see page II-8).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
+ To be filed by amendment.
* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant to
the Company's Application Requesting Confidential Treatment under Rule 406
under the Securities Act.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF COMBICHEM, INC,
a Delaware Corporation
The undersigned, a natural person (the "Sole Incorporator"),
for the purpose of organizing a corporation to conduct business and promote the
purpose hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
ARTICLE I
The name of this corporation is CombiChem, Inc.
ARTICLE II
The address of the corporation's registered office in the
State of Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent 19901.
The name of its registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to
issue two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the corporation is
authorized to issue is One Hundred Forty-Three Million One Hundred Seventy-Six
Thousand Two Hundred Ninety-Six (143,196,296) shares. Eighty Million
(80,000,000) shares shall be Common Stock, with a par value of $0.001 per share
and Sixty Three Million One Hundred Seventy-Six Thousand Two Hundred Ninety-Six
(63,196,296) shares shall be Preferred Stock, with a par value of $0.001 per
share. The Preferred Stock authorized by these Restated Articles of
Incorporation shall be issued by series as set forth herein. The first series
of Preferred Stock shall be designated "Series A Preferred Stock" and shall
consist of One Million (1,000,000) shares. The second series of Preferred
Stock shall be designated "Series B Preferred Stock" and shall consist of Two
Million Two Hundred Twenty-Six Thousand Six Hundred Sixty-Seven (2,226,667)
shares. The third series of Preferred Stock shall be designated "Series C
Preferred Stock" and shall consist of Seventeen Million Five Hundred Nineteen
Thousand Seven Hundred Seventy-Six (17,519,776) shares. The fourth series of
Preferred Stock shall be designated "Series D Preferred Stock" and shall
consist of Nine Million Eight Hundred Fifty-Nine Thousand Two Hundred Five
(9,869,205) shares. The fifth series of Preferred Stock shall be designated
"Series J Preferred Stock" and shall consist of Four Hundred Sixty-Five
Thousand (465,000)
<PAGE> 2
shares. The sixth series of Preferred Stock shall be designated "Series Z
Preferred Stock" and shall consist of One Million Five Hundred Thousand
(1,500,000) shares. The seventh series of Preferred Stock shall be designated
"Series A-1 Preferred Stock: and shall consist of One Million (1,000,000)
shares. The eighth series of Preferred Stock shall be designated "Series B-1
Preferred Stock" and shall consist of Two Million Two Hundred Twenty-Six
Thousand Six Hundred Sixty-Seven (2,226,667) shares. The ninth series of
Preferred Stock shall be designated "Series C-1 Preferred Stock" and shall
consist of Seventeen Million Five Hundred Nineteen Thousand Seven Hundred
Seventy-Six (17,519,776) shares. The tenth series of Preferred Stock shall be
designated "Series D-1 Preferred Stock" and shall consist of Nine Million Eight
Hundred Fifty-Nine Thousand Two Hundred Five (9,869,205) shares.
B. Rights, Preferences and Restrictions of Preferred
Stock. The Preferred Stock authorized by this Certificate of Incorporation may
be issued from time to time in one or more series. The rights, preferences,
privileges and restrictions granted to and imposed on the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock, the Series J Preferred Stock, the Series Z Preferred Stock,
the Series A-1 Preferred Stock, the Series B-1 Preferred Stock, the Series C-1
Preferred Stock and the Series D-1 Preferred Stock are as set forth below in
this Article IV(B). Subject to compliance with applicable protective voting
rights ("Protective Provisions") which have been or may be granted to the
Preferred Stock or any series thereof in Certificates of Determination or this
corporation's Articles of Incorporation, as amended from time to time, the
Board of Directors is also authorized to increase or decrease the number of
shares of any series (other than the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock,
the Series A-1 Preferred Stock, the Series B-1 Preferred Stock, the Series C-1
Preferred Stock and the Series D-1 Preferred Stock), prior or subsequent to the
issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
1. Dividend Provisions.
(a) The holders of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
shall be entitled to receive dividends in any fiscal year, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive,
directly or indirectly, additional shares of Common Stock of this corporation)
on the Series J Preferred Stock or the Common Stock of this corporation, at the
rate of $0.04 per share of Series A Preferred Stock, $0.06 per share of Series
B Preferred Stock, $0.0496 per share
<PAGE> 3
of Series C Preferred Stock, $0.08 per share of Series D Preferred Stock, $0.04
per share of Series Z Preferred Stock, $0.04 per share of Series A-1 Preferred
Stock, $0.06 per share of Series B-1 Preferred Stock, $0.0496 per share of
Series C-1 Preferred Stock and $0.08 per share of Series D-1 Preferred Stock
(each subject to appropriate adjustments for stock splits, stock dividends,
combinations or other recapitalizations) per annum, payable quarterly when, as
and if declared by the Board of Directors. Such dividends shall not be
cumulative. After full dividends on the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock,
the Series Z Preferred Stock, the Series A-1 Preferred Stock, the Series B-1
Preferred Stock, the Series C-1 Preferred Stock and the Series D-1 Preferred
Stock for all past dividend periods and the then current dividend period have
been paid, the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock and Series D-1 Preferred Stock and the holders of shares of
Series J Preferred Stock and Common Stock shall participate ratably in any
dividends or other distributions (as distributions are defined below).
(b) For purposes of this subsection 1, unless the
context otherwise requires, "distribution(s)" shall mean the transfer of cash
or property without consideration, whether by way of dividend or otherwise, or
the purchase or redemption of shares of this corporation (other than
repurchases of common stock held by directors, employees or consultants of this
corporation upon termination of their employment or services pursuant to
agreements providing for such repurchase) for cash or property, including any
such transfer, purchase or redemption by a subsidiary of this corporation.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution
or winding up of this corporation, either voluntary or involuntary, subject to
the rights of series of Preferred Stock that may from time to time come into
existence, the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Series J Preferred Stock or Common Stock by reason of their
ownership thereof, an amount per share equal to the sum of (i) $0.50 for each
outstanding share of Series A Preferred Stock (the "Original Series A Issue
Price"), (ii) $0.75 for each outstanding share of Series B Preferred Stock (the
"Original Series B Issue Price"), (iii) $0.62 for each outstanding share of
Series C Preferred Stock (the "Original Series C Issue Price"), (iv) $1.00 for
each outstanding share of Series D Preferred Stock (the "Original Series D
Issue Price"), (v) $0.50 for each outstanding share of Series Z Preferred Stock
(the "Original Series Z Issue Price"), (vi) $0.50 for each outstanding share of
Series A-1 Preferred Stock (the "Original Series A-1 Issue Price"), (vii) $0.75
for each outstanding share of Series B-1 Preferred Stock (the "Original Series
B-1 Issue Price"), (viii) $0.62 for each outstanding share of Series C-1
Preferred Stock (the "Original Series C-1 Issue Price"), (ix) $1.00 for each
outstanding share of Series D-1 Preferred Stock (the "Original Series D-1 Issue
Price") (each subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations) and (x) an amount equal to
declared but unpaid dividends on such share of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock and Series D-1
3.
<PAGE> 4
Preferred Stock, respectively. If upon the occurrence of such event, the
assets and funds thus distributable among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, subject to the rights of series of
Preferred Stock that may from time to time come into existence, the entire
assets and funds of the corporation legally available for distribution shall be
distributed (x) first ratably among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1
Preferred Stock and Series D-1 Preferred Stock in proportion to the aggregate
liquidation preferences of each respective series, and ratably among the
holders of that series in proportion to the amount of such stock owned by each
such holder, and (y) thereafter ratably among the holders of the Series Z
Preferred Stock in proportion to the amount of such stock owned by each such
holder.
(b) Upon the completion of the distribution
required by subparagraph (a) of this Section 2 and any other distribution that
may be required with respect to series of Preferred Stock that may from time to
time come into existence, the remaining assets of the corporation available for
distribution to stockholders shall be distributed among the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series
D-1 Preferred Stock and Common Stock pro rata based on the number of shares of
Common Stock held by each (with each share of Preferred Stock participating on
an "as-converted-into-Common-Stock" basis).
(c) A consolidation or merger of this corporation
with or into any other corporation or corporations in which fifty percent (50%)
or more of the voting power of the corporation held by the stockholders of the
corporation immediately prior to the merger or consolidation is transferred
(excluding reincorporations of the corporation the sole purpose of which is to
change the state of incorporation), or a sale, conveyance or disposition of all
or substantially all of the assets of this corporation or the effectuation by
the corporation of a transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of the corporation is
transferred, shall be deemed to be a liquidation, dissolution or winding up
within the meaning of this Section 2.
3. Redemption.
(a) At any time after December 31, 1998, but
within forty-five (45) days (the "Redemption Date") after the receipt by this
corporation of a written request from the holders of not less than seventy
percent (70%) of the then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock treated as a single class, that all of
such holders' shares be redeemed, and immediately prior to the surrender by
such holders of the certificates representing such shares, this corporation
shall, to the extent it may lawfully do so, redeem all of the then outstanding
4.
<PAGE> 5
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
by paying in cash therefor a sum per share equal to the Original Series A Issue
Price (as adjusted for any stock dividends, combinations or splits with respect
to such share) plus an amount equal to declared but unpaid dividends on such
share for each share of Series A Preferred Stock, the Original Series B Issue
Price (as adjusted for any stock dividends, combinations or splits with respect
to such share) plus an amount equal to declared but unpaid dividends on such
share for each share of Series B Preferred Stock, the Original Series C Issue
Price (as adjusted for any stock dividends, combinations or splits with respect
to such share) plus an amount equal to declared but unpaid dividends on such
share for each share of Series C Preferred Stock, the Original Series D Issue
Price (as adjusted for any stock dividends, combinations or splits with respect
to such share) plus an amount equal to declared but unpaid dividends on such
share for each share of Series D Preferred Stock, the Original Series A-1 Issue
Price (as adjusted for any stock dividends, combinations or splits with respect
to such share) plus an amount equal to declared but unpaid dividends on such
share for each share of Series A-1 Preferred Stock, the Original Series B-1
Issue Price (as adjusted for any stock dividends, combinations or splits with
respect to such share) plus an amount equal to declared but unpaid dividends on
such share for each share of Series B-1 Preferred Stock, the Original Series
C-1 Issue Price (as adjusted for any stock dividends, combinations or splits
with respect to such share) plus an amount equal to declared but unpaid
dividends on such share for each share of Series C-1 Preferred Stock and the
Original Series D-1 Issue Price (as adjusted for any stock dividends,
combinations or splits with respect to such share) plus an amount equal to
declared but unpaid dividends on such share for each share of Series D-1
Preferred Stock (such amounts are hereinafter referred to herein as the
"Redemption Prices").
(b) Not less than fifteen (15) days prior to the
Redemption Date, written notice shall be mailed, first class postage prepaid,
to each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock at the address last shown on the records
of this corporation for such holder, notifying such holder of the redemption to
be effected, specifying the number of shares to be redeemed from such holder
(which shall be all of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series A-
1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock held by such holder), the Redemption Date, the
Redemption Prices of each of the respective series to be redeemed from such
holder, the place at which payment may be obtained and calling upon such holder
to surrender to this corporation, in the manner and at the place designated,
his, her or its certificate or certificates representing all of the shares of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock held
by such holder (the "Redemption Notice"). Except as provided in subsection
3(c) of this Division B of Article IV, on or after the Redemption Date, each
holder of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
5.
<PAGE> 6
shall surrender to this corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Prices of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled.
(c) From and after the Redemption Date, unless
there shall have been a default in payment of the Redemption Prices, all rights
of the holders of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock as holders of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock,
respectively (except the right to receive the respective Redemption Prices
without interest upon surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of this corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the corporation legally available for
redemption of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock on the Redemption Date are insufficient to redeem the total number of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
on such date, those funds which are legally available will be used to redeem
the maximum possible number of such shares ratably among the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock in proportion
to the Redemption Prices of the respective series, and ratably among the
holders of each series in proportion to the amount of such stock owned by each
such holder. Notwithstanding anything herein to the contrary, the shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock not redeemed
shall remain outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional funds of the
corporation are legally available for the redemption of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock and Series D-1 Preferred Stock, such funds will immediately
be used to redeem the balance of the shares which the corporation has become
obliged to redeem on the Redemption Date but which it has not redeemed.
(d) The shares of Series J Preferred Stock and
Series Z Preferred Stock are not redeemable.
4. Conversion. The holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1
6.
<PAGE> 7
Preferred Stock and Series D-1 Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share and, in the case
of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock,
on or prior to the fifth day prior to the Redemption Date, if any, as may have
been fixed in the Redemption Notice, at the office of this corporation or any
transfer agent for such stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing (i) the Original Series A
Issue Price for each share of Series A Preferred Stock, (ii) the Original
Series B Issue Price for each share of Series B Preferred Stock, (iii) the
Original Series C Issue Price for each share of Series C Preferred Stock, (iv)
the Original Series D Issue Price for each share of Series D Preferred Stock,
(v) $0.10 for each share of Series J Preferred Stock (the "Original Series J
Issue Price"), (vi) the Original Series Z Issue Price for each share of Series
Z Preferred Stock, (vii) the Original Series A-1 Issue Price for each share of
Series A-1 Preferred Stock, (viii) the Original Series B-1 Issue Price for each
share of Series B-1 Preferred Stock, (ix) the Original Series C-1 Issue Price
for each share of Series C-1 Preferred Stock and (x) the Original Series D-1
Issue Price for each share of Series D-1 Preferred Stock, in each case by the
Conversion Price at the time in effect for such share. The initial Conversion
Price per share for shares of Series A Preferred Stock shall be the Original
Series A Issue Price, for shares of Series B Preferred Stock shall be the
Original Series B Issue Price, for shares of Series C Preferred Stock shall be
the Original Series C Issue Price, for shares of Series D Preferred Stock shall
be the Original Series D Issue Price, for shares of Series J Preferred Stock
shall be the Original Series J Issue Price, for shares of Series Z Preferred
Stock shall be the Original Series Z Issue Price, for shares of Series A-1
Preferred Stock shall be the Original Series A-1 Issue Price, for shares of
Series B-1 Preferred Stock shall be the Original Series B-1 Issue Price, for
shares of Series C-1 Preferred Stock shall be the Original Series C-1 Issue
Price and for shares of Series D-1 Preferred Stock shall be the Original Series
D-1 Issue Price; provided, however, that the Conversion Price for the Series A
Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock and the Series Z Preferred Stock shall each be subject to
adjustment as set forth in subsections 4(d) and 4(e) of this Division B of
Article IV and the Conversion Price for the Series J Preferred Stock, the
Series A-1 Preferred Stock, the Series B-1 Preferred Stock, the Series C-1
Preferred Stock and the Series D-1 Preferred Stock shall be subject to
adjustment as set forth in subsection 4(e) of this Division B of Article IV.
(b) Automatic Conversion. Each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock shall automatically be converted into shares of
Common Stock at the Conversion Price at the time in effect for such series
immediately upon the earlier of (i) the closing of the corporation's sale of
its Common
7.
<PAGE> 8
Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as
amended, the public offering price of which (exclusive of underwriting
discounts, commissions and expenses) is not less than $4.00 per share (adjusted
to reflect subsequent stock dividends, stock splits or recapitalizations) and
$12,000,000 in the aggregate or (ii) the date specified by written consent or
agreement of the holders of at least seventy percent (70%) of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock, voting
together as a single class.
(c) Mechanics of Conversion. Before any holder
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series J Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1
Preferred Stock or Series D-1 Preferred Stock shall be entitled to convert the
same into shares of Common Stock, he, she or it shall surrender the certificate
or certificates therefor, duly endorsed, at the office of this corporation or
of any transfer agent for such stock and shall give written notice to this
corporation at its principal corporate office of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
each such holder, or to the nominee or nominees of each such holder, (i) a
certificate or certificates for the number of shares of Common Stock to which
each such holder shall be entitled as aforesaid and (ii) a cash payment of all
declared but unpaid dividends on the converted shares as of the date of
conversion. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock or Series D-1 Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock or Series D-1 Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and/or Series D-1 Preferred
Stock shall not be deemed to have converted such Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock or Series D-1 Preferred
Stock until immediately prior to the closing of such sale of securities.
8.
<PAGE> 9
(d) Conversion Price Adjustments of Series A,
Series B, Series C, Series D and Series Z Preferred Stock for Certain Dilutive
Issuances. The Conversion Price of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
Z Preferred Stock shall be subject to adjustment from time to time as follows:
(i)(A) If the corporation shall issue,
after the date upon which any shares of Series D Preferred Stock were first
issued (the "Purchase Date"), any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for such series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for such series in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including, without limitation,
the number of shares of Common Stock issuable upon the conversion of the
Preferred Stock) plus the number of shares of Common Stock that the aggregate
consideration received by the corporation for such issuance would purchase at
such Conversion Price, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance
(including, without limitation, the number of shares of Common Stock issuable
upon the conversion of the Preferred Stock) plus the number of shares of such
Additional Stock.
(B) No adjustment of the Conversion
Price for the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series Z Preferred Stock shall be
made in an amount less than one cent per share, provided that any adjustments
which are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment
made prior to three (3) years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of three (3)
years from the date of the event giving rise to the adjustment being carried
forward. Except to the limited extent provided for in subsections
4(d)(i)(E)(3) and 4(d)(i)(E)(4) of this Division B of Article IV, no adjustment
of such Conversion Price pursuant to this subsection 4(d)(i) shall have the
effect of increasing the Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.
9.
<PAGE> 10
(E) In the case of the issuance (whether
before, on or after the applicable Purchase Date) of options or warrants to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options or warrants to
purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
subsection 4(d)(i) and subsection 4(d)(ii) of this Division B of Article IV:
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability, including
without limitation, the passage of time, but without taking
into account potential antidilution adjustments) of such
options or warrants to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time
such options, warrants or rights were issued and for a
consideration equal to the consideration (determined in the
manner provided in subsections 4(d)(i)(C) and (d)(i)(D) of
this Division B of Article IV), if any, received by the
corporation upon the issuance of such options, warrants or
rights plus the minimum exercise price provided in such
options, warrants or rights (without taking into account
potential antidilution adjustments) for the Common Stock
covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in
exchange (assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such
convertible or exchangeable securities or upon the exercise of
options or warrants to purchase or rights to subscribe for
such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such
options, warrants or rights were issued and for a
consideration equal to the consideration, if any, received by
the corporation for any such securities and related options,
warrants or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the
corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options,
warrants or rights (the consideration in each case to be
determined in the manner provided in subsections 4(d)(i)(C)
and (d)(i)(D) of this Division B of Article IV).
(3) In the event of any change in
the number of shares of Common Stock deliverable or in the
consideration payable to this corporation upon exercise of
such options, warrants or rights or upon conversion of or in
exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the
Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series Z
Preferred Stock, to the extent in any way affected by or
computed using such
10.
<PAGE> 11
options, warrants, rights or securities, shall be recomputed
to reflect such change, but no further adjustment shall be
made for the actual issuance of Common Stock or any payment of
such consideration upon the exercise of any such options,
warrants or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such
options, warrants or rights, the termination of any such
rights to convert or exchange or the expiration of any
options, warrants or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series Z Preferred Stock,
to the extent in any way affected by or computed using such
options, warrants, rights or securities or options, warrants
or rights related to such securities, shall be recomputed to
reflect the issuance of only the number of shares of Common
Stock (and convertible or exchangeable securities which remain
in effect) actually issued upon the exercise of such options,
warrants or rights, upon the conversion or exchange of such
securities or upon the exercise of the options, warrants or
rights related to such securities.
(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor
pursuant to subsections 4(d)(i)(E)(1) and (2) of this Division
B of Article IV shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in
either subsection 4(d)(i)(E)(3) or (4) of this Division B of
Article IV.
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
4(d)(i)(E) of this Division B of Article IV) by this corporation after the
Purchase Date other than:
(A) shares of Common Stock issued upon
conversion of the Preferred Stock; or
(B) up to 6,220,274 shares of Common
Stock (as adjusted for any stock splits or other
recapitalization) issuable or issued to employees, consultants
or directors of this corporation pursuant to stock option
plans or arrangements approved by the Board of Directors of
the corporation; or
(C) Common Stock issued pursuant to a
transaction described in subsection 4(e)(i) of this Division B
of Article IV; or
(D) shares of Common Stock or warrants
to purchase shares of Common Stock issued in connection with a
bona fide acquisition of another business, whether by merger,
consolidation or purchase of assets, or bona fide equipment
leasing transactions unanimously approved by the Board of
Directors of this corporation; or
11.
<PAGE> 12
(E) shares of Preferred Stock issued
upon exercise of any options or warrants to purchase the
corporation's Preferred Stock outstanding as of the Purchase
Date.
(e) Conversion Price Adjustments of Preferred
Stock for Certain Splits and Combinations. The Conversion Price of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) In the event the corporation should at
any time or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each share of such series shall be increased in proportion to
such increase in the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with the number of
shares issuable with respect to Common Stock Equivalents determined from time
to time in the manner provided for deemed issuances in subsection 4(d)(i)(E) of
this Division B of Article IV.
(ii) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Price for the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
(f) Other Distributions. In the event this
corporation shall declare a distribution payable in securities of other
persons, evidences of indebtedness issued by this corporation or other persons,
assets (excluding cash dividends) or options or rights not referred to in
subsection 4(e)(i) of this Division B of Article IV, then, in each such case
for the purpose of this subsection 4(f), the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series J Preferred Stock,
12.
<PAGE> 13
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the corporation into
which their shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock are convertible
as of the record date fixed for the determination of the holders of Common
Stock of the corporation entitled to receive such distribution.
(g) Recapitalizations. If at any time or from
time to time there shall be a recapitalization of the Common Stock (other than
a subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2 of this Division B of Article IV)
provision shall be made so that the holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock, respectively, the number of shares of stock or
other securities or property of the Company or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 4 with respect to the rights
of the holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock)
shall be applicable after that event as nearly equivalent as may be
practicable.
(h) No Impairment. Unless approved in accordance
with Sections 6 and 7 of this Division B of Article IV, this corporation will
not, by amendment of its Articles of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by this corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 4
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1
Preferred Stock against impairment.
13.
<PAGE> 14
(i) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock or Series D-1 Preferred
Stock and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share. Whether or not fractional shares are issuable upon
such conversion shall be determined on the basis of the total number of shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series J Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1
Preferred Stock and Series D-1 Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment
or readjustment of the Conversion Price of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock
pursuant to this Section 4, this corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. This
corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock or
Series D-1 Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such series of Preferred Stock at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock.
(j) Notices of Record Date. In the event of any
taking by this corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
this corporation shall mail to each holder of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock,
at least 20 days prior to the date specified therein, a
14.
<PAGE> 15
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character
of such dividend, distribution or right.
(k) Reservation of Stock Issuable Upon
Conversion. This corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock, in addition to such other remedies as shall be available to each holder
of any of such Preferred Stock, this corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, using its
best efforts to obtain the requisite stockholder approval of any necessary
amendment to these articles.
(l) Notices. Any notice required by the
provisions of this Section 4 to be given to the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock shall be deemed given if deposited in the United
States mail, postage prepaid, and addressed to each holder of record at his
address appearing on the books of this corporation.
(m) Special Mandatory Conversion.
(i) At any time following the Purchase
Date, if (a) the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock are
entitled to exercise the right of first refusal (the "Right of First Refusal")
set forth in Section 2.3 of the Amended or Restated Investors' Rights Agreement
dated on or about November 12, 1996, by and between this corporation and
certain investors, as amended from time to time (the "Rights Agreement"), with
respect to an equity financing of the corporation in an aggregate amount of at
least $500,000 (the "Equity Financing"), (b) this corporation has complied with
its notice obligations, or such obligations have been waived, under the Right
of First Refusal with respect to such Equity Financing and this corporation
thereafter proceeds to consummate the Equity Financing and (c) such holder,
including such holder's affiliates (collectively, a "Non- Participating
Holder") does not by
15.
<PAGE> 16
exercise of such holder's Right of First Refusal acquire his, her or its Pro
Rata Share (as defined in Section 2.3 of the Rights Agreement) offered in such
Equity Financing (a "Mandatory Offering"), then all of such Non-Participating
Holder's shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and/or Series D Preferred Stock shall automatically and without
further action on the part of such holder be converted effective upon, subject
to and immediately prior to, the consummation of the Mandatory Offering (the
"Mandatory Offering Date") into an equivalent number of shares of Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock, respectively ("Special Mandatory Conversion");
provided, however, that no such conversion shall occur in connection with a
particular Equity Financing if, pursuant to the written request of the Board of
Directors and subject to the approval of the holders of a majority of the
outstanding Preferred Stock, such holder agrees in writing to waive his, her or
its Right of First Refusal with respect to such Equity Financing. Upon
conversion pursuant to this subsection 4(m)(i), the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or
Series D Preferred Stock so converted shall be cancelled and not subject to
reissuance.
(ii) The holder of any shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or
Series D Preferred Stock converted pursuant to this subsection 4(m) shall
deliver to this corporation during regular business hours at the office of any
transfer agent of the corporation for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock or at
such other place as may be designated by the corporation, the certificate or
certificates for the shares so converted, duly endorsed or assigned in blank or
to this corporation. As promptly as practicable thereafter, this corporation
shall issue and deliver to such holder, at the place designated by such holder,
a certificate or certificates for the number of full shares of the Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and/or
Series D-1 Preferred Stock to be issued and such holder shall be deemed to have
become a stockholder of record of such Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and/or Series D-1 Preferred Stock
on the Mandatory Offering Date unless the transfer books of this corporation
are closed on that date, in which event he, she or it shall be deemed to have
become a stockholder of record of such Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and/or Series D-1 Preferred Stock
on the next succeeding date on which the transfer books are open.
(iii) In the event that any shares of
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and/or Series D-1 Preferred Stock are issued, concurrently with such
issuance, this corporation shall use its best efforts to take all such action
as may be required, including amending its Articles of Incorporation, (a) to
cancel all authorized shares of Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock that
remain unissued after such issuance, (b) to create and reserve for issuance
upon Special Mandatory Conversion of any then outstanding Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock a new series of Preferred Stock equal in number to the number
of shares of Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1
Preferred Stock and Series D-1 Preferred Stock so cancelled and designated
Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series C-2 Preferred
Stock and Series D-2 Preferred Stock, with
16.
<PAGE> 17
the designations, powers, preferences and rights and the qualifications,
limitations and restrictions identical to those then applicable to the Series
A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock, respectively, except that the Conversion Price for
such shares of Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series
C-2 Preferred Stock and Series D-2 Preferred Stock once initially issued shall
be the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price and the Series D Conversion Price, respectively, in effect
immediately prior to such issuance and (c) to amend the provisions of this
subsection 4(m) to provide that any subsequent Special Mandatory Conversion
will be into shares of Series A-2 Preferred Stock, Series B-2 Preferred Stock,
Series C-2 Preferred Stock and Series D-2 Preferred Stock rather than Series
A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock or
Series D-1 Preferred Stock, respectively. This corporation shall take the same
actions with respect to the Series A-2 Preferred Stock, Series B-2 Preferred
Stock, Series C-2 Preferred Stock and Series D-2 Preferred Stock and each
subsequently authorized series of Preferred Stock upon initial issuance of
shares of the last such series to be authorized. The right to receive any
dividend declared but unpaid at the time of conversion on any shares of
Preferred Stock converted pursuant to the provisions of this subsection 4(m)
shall accrue to the benefit of the new shares of Preferred Stock issued upon
conversion thereof.
(iv) A copy of the Rights Agreement is on
file at the offices of this corporation and will be made available upon request
and without charge.
5. Voting Rights. The holder of each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock shall have the right to one vote for each share of
Common Stock into which such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock could
then be converted, and with respect to such vote, such holder shall have full
voting rights and powers equal to the voting rights and powers of the holders
of Common Stock, and shall be entitled, notwithstanding any provision hereof,
to notice of any stockholders' meeting in accordance with the bylaws of this
corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, and Series C-1 Preferred Stock and Series D-1 Preferred Stock
held by each holder could be converted) shall be rounded to the nearest whole
number (with one-half being rounded upward).
6. Protective Provisions for Series A, Series B, Series
C, Series D, Series Z, Series A-1, Series B-1, Series C-1 and Series D-1
Preferred Stock. So long as any shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
17.
<PAGE> 18
Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least
seventy percent (70%) of the then outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock,
voting together as a single class:
(a) alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock or Series D-1 Preferred Stock so as to affect materially or adversely the
shares; or
(b) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock;
or
(c) reclassify any shares of Common Stock or
Preferred Stock to give those shares a preference over, or to make those shares
on a parity with, the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock or Series D-1 Preferred Stock with respect to dividends, redemption or
voting rights or upon liquidation; or
(d) redeem, purchase or otherwise acquire (or pay
into or set aside for a sinking fund for such purpose) any share or shares of
Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Company or any
subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares at cost or upon the occurrence of certain events, such
as the termination of employment.
7. Protective Provisions for Series C and Series C-1
Preferred Stock. So long as any shares of Series C Preferred Stock or Series
C-1 Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of a majority of the then outstanding shares of Series C Preferred
Stock and Series C-1 Preferred Stock voting together as a single class:
(a) amend the corporation's Articles of
Incorporation to alter or change the rights, preferences or privileges of the
shares of Series C Preferred Stock or Series C-1 Preferred Stock so as to
affect materially or adversely the shares; or
(b) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Series C
Preferred Stock or Series C-1 Preferred Stock
18.
<PAGE> 19
(other than pursuant to subsection (m) of Section 4 of Division B of this
Article IV hereof); or
(c) authorize or issue, or obligate itself to
issue, any other equity security, including any other security convertible into
or exercisable for any equity security, having a preference over, or being on a
parity with, the Series C Preferred Stock or Series C-1 Preferred Stock with
respect to dividends, redemption or voting rights or upon liquidation; or
(d) reclassify any shares of Common Stock to give
those shares a preference over, or to make those shares on a parity with, the
Series C Preferred Stock or Series C-1 Preferred Stock with respect to
dividends, redemption or voting rights or upon liquidation; or
(e) pay dividends upon or redeem, purchase or
otherwise acquire (or pay into or set aside for a sinking fund for such
purpose) any share or shares of Preferred Stock or Common Stock other than
shares of Series C Preferred Stock or Series C-1 Preferred Stock; provided,
however, that this restriction shall not apply to (i) the repurchase of shares
of Common Stock from employees, officers, directors, consultants or other
persons performing services for the Company or any subsidiary pursuant to
agreements under which the Company has the option to repurchase such shares at
cost or upon the occurrence of certain events, such as the termination of
employment, or (ii) the redemption of any share or shares of Preferred Stock in
accordance with the provisions of Section 3 of this Division B of Article IV;
or
8. Protective Provisions for Series D and Series D-1
Preferred Stock. So long as any shares of Series D Preferred Stock or Series
D-1 Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of a majority of the then outstanding shares of Series D Preferred
Stock and Series D-1 Preferred Stock voting together as a single class:
(a) amend the corporation's Articles of
Incorporation to alter or change the rights, preferences or privileges of the
shares of Series D Preferred Stock or Series D-1 Preferred Stock so as to
affect materially or adversely the shares; or
(b) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Series D
Preferred Stock or Series D-1 Preferred Stock (other than pursuant to
subsection (m) of Section 4 of Division B of this Article IV hereof); or
(c) authorize or issue, or obligate itself to
issue, any other equity security, including any other security convertible into
or exercisable for any equity security, having a preference over, or being on a
parity with, the Series D Preferred Stock or Series D-1 Preferred Stock with
respect to dividends, redemption or voting rights or upon liquidation; or
(d) reclassify any shares of Common Stock to give
those shares a preference over, or to make those shares on a parity with, the
Series D Preferred Stock or
19.
<PAGE> 20
Series D-1 Preferred Stock with respect to dividends, redemption or voting
rights or upon liquidation; or
(e) pay dividends upon or redeem, purchase or
otherwise acquire (or pay into or set aside for a sinking fund for such
purpose) any share or shares of Preferred Stock or Common Stock other than
shares of Series D Preferred Stock or Series D-1 Preferred Stock; provided,
however, that this restriction shall not apply to (i) the repurchase of shares
of Common Stock from employees, officers, directors, consultants or other
persons performing services for the Company or any subsidiary pursuant to
agreements under which the Company has the option to repurchase such shares at
cost or upon the occurrence of certain events, such as the termination of
employment, or (ii) the redemption of any share or shares of Preferred Stock in
accordance with the provisions of Section 3 of this Division B of Article IV;
or
9. Protective Provisions for Series C, Series D, Series
C-1 and Series D-1 Preferred Stock. So long as any shares of Series C
Preferred Stock, Series D Preferred Stock, Series C-1 Preferred Stock or Series
D-1 Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of a majority of the then outstanding shares of Series C Preferred
Stock, Series D Preferred Stock, Series C-1 Preferred Stock and Series D-1
Preferred Stock, voting together as a single class:
(a) sell, convey or otherwise dispose of or
encumber all or substantially all of its assets or business or merge with or
into or consolidate with any other entity (other than a wholly-owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the corporation is
disposed of; or
(b) increase the authorized number of directors
of the corporation to more than eight (8).
10. Status of Redeemed or Converted Stock. In the event
(a) any shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock
shall be redeemed pursuant to Section 3 of this Division B of Article IV or (b)
any shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock or Series D-1 Preferred Stock shall be converted pursuant
to Section 4 of this Division B of Article IV, the shares so redeemed or
converted shall be cancelled, together with a like number of shares of Common
Stock, and such shares and shall not be issuable by the corporation. The
Articles of Incorporation of this corporation shall be appropriately amended to
effect the corresponding reduction in the corporation's authorized capital
stock.
11. Repurchase of Shares. Each holder of an outstanding
share of Preferred Stock shall be deemed to have consented, for purposes of
Sections 160 and/or 173 of the Delaware General Corporation Law, to
distributions made by the corporation in connection
20.
<PAGE> 21
with the repurchase of shares of Common Stock issued to or held by employees,
officers, directors, consultants or other persons performing services for the
Company or any subsidiary pursuant to agreements under which the Company has
the option to repurchase such shares at cost or upon the occurrence of certain
events, such as the termination of employment.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of
holders of all classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Common Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of any assets of the
corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation,
dissolution or winding up of the corporation, the assets of the corporation
shall be distributed as provided in Section 2 of division B of this Article IV.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common
Stock shall have the right to one vote with respect to such share, and shall be
entitled to notice of any stockholders' meeting in accordance with the bylaws
of this corporation, and shall be entitled to vote upon such matters and in
such manner as may be provided by law.
ARTICLE V
A. Exculpation. A director of the corporation shall not
be personally liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law or (iv) for any transaction from which
the director derived any improper personal benefit. If the Delaware General
Corporation Law is hereafter amended to further reduce or to authorize, with
the approval of the corporation's stockholders, further reductions in the
liability of the corporation's directors for breach of fiduciary duty, then a
director of the corporation shall not be liable for any such breach to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
B. Indemnification. To the extent permitted by applicable
law, this corporation is also authorized to provide indemnification of (and
advancement of expenses to) such agents (and any other persons to which Delaware
law permits this corporation to provide indemnification) through bylaw
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
21.
<PAGE> 22
C. Effect of Repeal or Modification. Any repeal or modification
of any of the foregoing provisions of this Article V shall be prospective and
shall not adversely affect any right or protection of a director, officer,
agent or other person existing at the time of, or increase the liability of any
director of the corporation with respect to any acts or omissions of such
director occurring prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation.
ARTICLE VII
No holder of shares of stock of the corporation shall have any
preemptive or other right, except as such rights are expressly provided by
contract, to purchase or subscribe for or receive any shares of any class, or
series thereof, of stock of the corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other securities
convertible into, exchangeable for or carrying any right to purchase any share
of any class, or series thereof, of stock; but such additional shares of stock
and such warrants, options, bonds, debentures or other securities convertible
into, exchangeable for or carrying any right to purchase any shares of any
class, or series thereof, of stock may be issued or disposed of by the Board of
Directors to such persons, and on such terms and for such lawful consideration
as in its discretion it shall deem advisable or as the corporation shall have
by contract agreed.
ARTICLE VIII
The corporation is to have a perpetual existence.
ARTICLE IX
The corporation reserves the right to repeal, alter, amend or rescind
any provision contained in this Certificate of Incorporation and/or any
provision contained in any amendment to or restatement of this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this
reservation.
ARTICLE X
The Board of Directors may from time to time make, amend, supplement
or repeal the Bylaws by the requisite affirmative vote of Directors as set
forth in the Bylaws; provided, however, that the stockholders may change or
repeal any bylaw adopted by the Board of Directors by the requisite affirmative
vote of stockholders as set forth in the Bylaws; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
22.
<PAGE> 23
ARTICLE XI
The name and mailing address of the incorporator is Lisa A. McQuen,
550 West "C" Street, Suite 1200, San Diego, California 92101.
[Remainder of This Page Intentionally Left Blank]
23.
<PAGE> 24
IN WITNESS WHEREOF, this Certificate of Incorporation has been signed
under the seal of the corporation as of this 18th day of September, 1997 by the
undersigned who affirms that the statements made herein are true and correct.
/s/ Lisa A. McQuen
-------------------------------------
Lisa A. McQuen
[SIGNATURE PAGE TO CERTIFICATE OF INCORPORATION
OF COMBICHEM, INC.]
24.
<PAGE> 25
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION OF
COMBICHEM, INC.
CombiChem, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That resolutions were duly adopted by the Board of Directors of
the Corporation setting forth proposed amendments to the Certificate of
Incorporation of the Corporation, and declaring said amendments to be advisable
and recommended for approval by the stockholders of the Corporation. The
resolutions setting forth the proposed amendments are as follows:
NOW, THEREFORE, BE IT RESOLVED, that Section A of Article IV of the
Certificate of Incorporation of the Corporation be amended in its
entirety to read as follows:
"A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the corporation is
authorized to issue is One Hundred Forty-Three Million One Hundred
Ninety-Six Thousand Two Hundred Ninety-Six (143,196,296) shares. Eighty
Million (80,000,000) shares shall be Common Stock and Sixty Three
Million One Hundred Ninety-Six Thousand Two Hundred Ninety-Six
(63,196,296) shares shall be Preferred Stock. The Preferred Stock
authorized by these Restated Articles of Incorporation shall be issued
by series as set forth herein. The first series of Preferred Stock shall
be designated "Series A Preferred Stock" and shall consist of One
Million (1,000,000) shares. The second series of Preferred Stock shall
be designated "Series B Preferred Stock" and shall consist of Two
Million Two Hundred Twenty-Six Thousand Six Hundred Sixty-Seven
(2,226,667) shares. The third series of Preferred Stock shall be
designated "Series C Preferred Stock" and shall consist of Seventeen
Million Five Hundred Nineteen Thousand Seven Hundred Seventy-Six
(17,519,776) shares. The fourth series of Preferred Stock shall be
designated "Series D Preferred Stock" and shall consist of Nine Million
Eight Hundred Sixty-Nine Thousand Two Hundred Five (9,869,205) shares.
The fifth series of Preferred Stock shall be designated "Series J
Preferred Stock" and shall consist of Four Hundred Sixty-Five Thousand
(465,000) shares. The sixth series of Preferred
<PAGE> 26
Stock shall be designated "Series Z Preferred Stock" and shall consist
of One Million Five Hundred Thousand (1,500,000) shares. The seventh
series of Preferred Stock shall be designated "Series A-1 Preferred
Stock: and shall consist of One Million (1,000,000) shares. The eighth
series of Preferred Stock shall be designated "Series B-1 Preferred
Stock" and shall consist of Two Million Two Hundred Twenty-Six Thousand
Six Hundred Sixty-Seven (2,226,667) shares. The ninth series of
Preferred Stock shall be designated "Series C-1 Preferred Stock" and
shall consist of Seventeen Million Five Hundred Nineteen Thousand Seven
Hundred Seventy-Six (17,519,776) shares. The tenth series of Preferred
Stock shall be designated "Series D-1 Preferred Stock" and shall consist
of Nine Million Eight Hundred Sixty-Nine Thousand Two Hundred Five
(9,869,205) shares.
Upon the amendment of this Article IV as set forth herein, each
four (4) shares of Common Stock, $0.001 par value per share, issued and
outstanding at such time shall be combined, reclassified and converted
into one (1) share of Common Stock, $0.001 par value per share ("new
shares"). No fractional share shall be issued upon the combination,
reclassification and conversion of any share or shares of Common Stock.
If the combination, reclassification and conversion of the shares of
Common Stock represented by each certificate (including, for this
purpose, a holder of a certificate of shares of Common Stock issuable
upon the conversion of Preferred Stock) would result in the issuance of
a fraction of a share of Common Stock, the Corporation shall, in lieu of
issuing any fractional share, issue the holder one additional share. An
amount shall be transferred from capital to surplus so that the amount
of capital represented by the new shares in the aggregate at the time of
filing of this Certificate of Amendment shall equal the aggregate number
of new shares multiplied by $0.001. Unless otherwise requested by the
holders thereof, the share certificates representing the shares
outstanding prior to the filing of this Certificate of Amendment shall
represent such number of new shares as combined, reclassified and
converted following the filing of this Certificate of Amendment. Upon
surrender by a holder of Common Stock of a certificate or certificates
for Common Stock, $0.001 par value, duly endorsed, at the office of this
Corporation, this Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Common Stock, or to
the nominee or nominees of such holder, a certificate or certificates
for the number of new shares to which such holder shall be entitled as
aforesaid."
SECOND: That, thereafter, the stockholders approved the foregoing
amendment by written consent in accordance with Section 228 of the Delaware
General Corporation Law.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law. The total
number
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<PAGE> 27
of outstanding shares of the Corporation is 7,650,924 shares of Common Stock,
1,000,000 shares of Series A Preferred Stock, 2,226,667 shares of Series B
Preferred Stock, 17,158,486 shares of Series C Preferred Stock, 9,869,205 shares
of Series D Preferred Stock, 232,500 shares of Series J Preferred Stock and
532,777 shares of Series Z Preferred Stock. The number of shares voting in favor
of the amendment equaled or exceeded the vote required, such required vote being
(a) a majority of the outstanding shares of Common Stock and (b) a majority of
the outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series Z Preferred Stock
(voting together on an as-converted basis) (c) a majority of the outstanding
shares of Series C Preferred Stock and (d) a majority of the outstanding shares
of Series D Preferred Stock.
FOURTH: That the capital of said Corporation shall not be reduced under
or by reason of said amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 28
IN WITNESS WHEREOF, said CombiChem, Inc. has caused this certificate to
be signed by Karin Eastham, its Vice President of Finance/Administration, this
14th day of October, 1997.
By: /s/ Karin Eastham
-------------------------------
Karin Eastham, Vice President
Finance/Administration
[SIGNATURE PAGE TO CERTIFICATE OF AMENDMENT]
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF COMBICHEM, INC.,
a Delaware corporation
CombiChem, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is CombiChem, Inc. The original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on September 19, 1997 and was amended pursuant
to a Certificate of Amendment of Certificate of Incorporation of the
Corporation filed with the Secretary of State of the State of Delaware on
October 14, 1997.
2. Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, the Amended and Restated Certificate of
Incorporation was adopted by the corporation's Board of Directors and
stockholders, the stockholders of the corporation having approved the Amended
and Restated Certificate of Incorporation by the written consent of the holders
of at least a majority of the outstanding shares in accordance with Section 228
thereof, and written notice having been given in accordance with the
requirements of such Section. The Amended and Restated Certificate of
Incorporation restates, integrates and amends the provisions of the Certificate
of Incorporation of this corporation.
3. The text of the Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in its
entirety as follows:
ARTICLE I
The name of this corporation is CombiChem, Inc.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent 19901. The name
of its registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
Delaware General Corporation Law.
<PAGE> 2
ARTICLE IV
(A) Classes of Stock. This corporation is authorized to issue two
classes of stock, denominated Common Stock and Preferred Stock. The Common
Stock shall have a par value of $0.001 per share and the Preferred Stock shall
have a par value of $0.001 per share. The total number of shares of Common
Stock which the Corporation is authorized to issue is Forty Million
(40,000,000), and the total number of shares of Preferred Stock which the
Corporation is authorized to issue is Five Million (5,000,000), which shares of
Preferred Stock shall be undesignated as to series.
(B) Issuance of Preferred Stock. The Preferred Stock may be
issued from time to time in one or more series. The Board of Directors is
hereby authorized, by filing one or more certificates pursuant to the Delaware
General Corporation Law (each, a "Preferred Stock Designation"), to fix or
alter from time to time the designations, powers, preferences and rights of
each such series of Preferred Stock and the qualifications, limitations or
restrictions thereof, including without limitation the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, and the
liquidation preferences of any wholly-unissued series of Preferred Stock, and
to establish from time to time the number of shares constituting any such
series and the designation thereof, or any of them; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
(C) Rights, Preferences, Privileges and Restrictions of Common
Stock.
1. Dividend Rights. Subject to the prior or equal rights of
holders of all classes of stock at the time outstanding having prior or equal
rights as to dividends, the holders of the Common Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of any assets of
the corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors.
2. Redemption. The Common Stock is not redeemable upon
demand of any holder thereof or upon demand of this corporation.
3. Voting Rights. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
(A) Exculpation. A director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a
-2-
<PAGE> 3
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv)
for any transaction from which the director derived any improper personal
benefit. If the Delaware General Corporation Law is hereafter amended to
further reduce or to authorize, with the approval of the corporation's
stockholders, further reductions in the liability of the corporation's
directors for breach of fiduciary duty, then a director of the corporation
shall not be liable for any such breach to the fullest extent permitted by the
Delaware General Corporation Law as so amended.
(B) Indemnification. To the extent permitted by applicable law,
this corporation is also authorized to provide indemnification of (and
advancement of expenses to) such agents (and any other persons to which
Delaware law permits this corporation to provide indemnification) through bylaw
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
(C) Effect of Repeal or Modification. Any repeal or modification
of any of the foregoing provisions of this Article V shall be prospective and
shall not adversely affect any right or protection of a director, officer,
agent or other person existing at the time of, or increase the liability of any
director of the corporation with respect to any acts or omissions of such
director occurring prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation. At the 1998 Annual Meeting
of Stockholders, the Directors shall be classified into three classes, as
nearly equal in number as possible as determined by the Board of Directors,
with the term of office of the first class to expire at the 1999 Annual Meeting
of Stockholders, the term of office of the second class to expire at the 2000
Annual Meeting of Stockholders and the term of office of the third class to
expire at the 2001 Annual Meeting of Stockholders. At each Annual Meeting of
Stockholders following such initial classification and election, Directors
elected to succeed those Directors whose terms expire shall be elected for a
term of office to expire at the third succeeding Annual Meeting of Stockholders
after their election. Additional directorships resulting from an increase in
the number of Directors shall be apportioned among the classes as equally as
possible as determined by the Board of Directors.
ARTICLE VII
No holder of shares of stock of the corporation shall have any
preemptive or other right, except as such rights are expressly provided by
contract, to purchase or subscribe for or receive any shares of any class, or
series thereof, of stock of the corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other securities
-3-
<PAGE> 4
convertible into, exchangeable for or carrying any right to purchase any share
of any class, or series thereof, of stock; but such additional shares of stock
and such warrants, options, bonds, debentures or other securities convertible
into, exchangeable for or carrying any right to purchase any shares of any
class, or series thereof, of stock may be issued or disposed of by the Board of
Directors to such persons, and on such terms and for such lawful consideration
as in its discretion it shall deem advisable or as the corporation shall have
by contract agreed.
ARTICLE VIII
The corporation is to have a perpetual existence.
ARTICLE IX
The corporation reserves the right to repeal, alter, amend or rescind
any provision contained in this Amended and Restated Certificate of
Incorporation and/or any provision contained in any amendment to or restatement
of this Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation.
ARTICLE X
The Board of Directors may from time to time make, amend, supplement
or repeal the Bylaws by the requisite affirmative vote of Directors as set
forth in the Bylaws; provided, however, that the stockholders may change or
repeal any bylaw adopted by the Board of Directors by the requisite affirmative
vote of stockholders as set forth in the Bylaws; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of stockholders called in accordance with the
Bylaws, and no action shall be taken by the stockholders by written consent.
ARTICLE XII
Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in
the Bylaws of the corporation.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE> 5
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed under the seal of the corporation as of this ____
day of October, 1997.
COMBICHEM, INC.,
a Delaware corporation
By:_______________________________
Vicente Anido, Jr.
President and Chief Executive
Officer
ATTEST:
___________________________________________________
Faye H. Russell, Secretary
[SIGNATURE PAGE TO AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF COMBICHEM, INC.]
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
COMBICHEM, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover,
County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of San Diego, State of California, at such
place as may be fixed from time to time by the Board of Directors, or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual meetings of stockholders, commencing with the year
1998, shall be held on such date and at such time as shall be designated from
time to time by the Board of Directors and stated in the notice of the meeting,
at which
<PAGE> 2
they shall elect by a plurality vote a board of directors, and transact such
other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to
vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders holding not less than
ten percent (10%) of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
<PAGE> 3
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the certificate of incorporation, a different vote is
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required, in which case such express provision shall govern and control the
decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall not be less than five (5) nor more than nine (9), the exact number
of directors to be fixed from time to time within such limit by duly adopted
resolutions of the Board of Directors. The exact number of directors presently
authorized shall be eight (8) until changed within the limits set
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forth above, and each director elected shall hold office until his successor is
elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. If, at
the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting
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and no notice of such meeting shall be necessary to the newly elected directors
in order legally to constitute the meeting, provided a quorum shall be present.
In the event of the failure of the stockholders to fix the time or place of
such first meeting of the newly elected Board of Directors, or in the event
such meeting is not held at the time and place so fixed by the stockholders,
the meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors, or as shall be specified in a written waiver signed by all of the
directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
President on four (4) days' notice to each director by mail or 48 hours' notice
to each director either personally or by telegram; special meetings shall be
called by the President or Secretary in like manner and on like notice on the
written request of two directors unless the board consists of only one
director, in which case special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of the sole
director.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
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Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee
to consist of two or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors
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in the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in
reference to amending the certificate of incorporation, adopting an agreement
of merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
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Section 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be elected by the
Board of Directors and shall include a President, a Secretary and a Chief
Financial Officer. The Board of Directors may elect from among its members a
Chairman of the Board and a Vice Chairman of the Board. The Board of Directors
may also elect a Chief Financial Officer and/or one or more Vice Presidents,
Assistant Secretaries and Assistant Chief Financial Officer. Any
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number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall elect a President, a Secretary and a Chief
Financial Officer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualified. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE PRESIDENT
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Section 8. The President shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of
Directors. He shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
Section 10. In the absence of the President or in the event of his
inability or refusal to act, the Vice President, if any, (or in the event there
be more than one Vice President, the Vice Presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or President, under
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whose supervision he shall be. He shall have custody of the corporate seal of
the corporation and he, or an Assistant Secretary, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
Section 12. The Assistant Secretary, or, if there be more than one,
the Assistant Secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the Secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
THE CHIEF FINANCIAL OFFICER AND ASSISTANT CHIEF FINANCIAL OFFICER
Section 13. The Chief Financial Officer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Chief Financial Officer and of the financial condition
of the corporation.
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Section 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
Section 16. The Assistant Chief Financial Officer, or if there shall
be more than one, the Assistant Chief Financial Officer in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election) shall, in the absence of the Chief Financial Officer
or in the event of his inability or refusal to act, perform the duties and
exercise the powers of the Chief Financial Officer and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the President or a Vice
President and the Chief Financial Officer or an Assistant Chief Financial
Officer, or the Secretary or an Assistant Secretary of the corporation,
certifying the number of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
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If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the corporation shall issue to represent such
class or series of stock, a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing
such issue of a new certificate or certificates, the Board of Directors may, in
its discretion and as a
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condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his legal representative,
to advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
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REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the
capital stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
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Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall indemnify its officers, directors,
employees and agents to the full extent permitted by the General Corporation
Law of Delaware.
ARTICLE VIII
AMENDMENT
Section 1. These bylaws may be altered, amended or repealed or new
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or
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repeal bylaws is conferred upon the Board of Directors by the certificate of
incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal bylaws.
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CERTIFICATE OF SECRETARY
The undersigned, being the Secretary of CombiChem, Inc., a Delaware
corporation, does hereby certify the foregoing to be the Bylaws of said
Corporation, as adopted by the directors of the Corporation and which remain in
full force and effect as of the date hereof.
Executed at San Diego, California effective as of September 19, 1997.
/S/ Faye H. Russell
--------------------------------------
Faye H. Russell, Secretary
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EXHIBIT 3.4
RESTATED BYLAWS
OF
COMBICHEM, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be in the
City of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders for
the election of Directors shall be held in the City of San Diego, State of
California, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
California as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meetings of stockholders for any
other purpose may be held at such time and place, within or without the State
of California, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meeting.
(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of Directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders,
only such business shall be conducted as shall have been properly brought
before the meeting. To be properly brought before an annual meeting, business
must be: (A) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (B) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(C) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal
<PAGE> 2
executive offices of the corporation no later than the date specified in the
corporation's proxy statement released to stockholders in connection with the
previous year's annual meeting of stockholders, which date shall be not less
than one hundred twenty (120) calendar days in advance of the date of such
proxy statement; provided, however, that in the event that no annual meeting
was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely
must be so received a reasonable time before the solicitation is made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the
corporation which are beneficially owned by the stockholder, (iv) any material
interest of the stockholder in such business and (v) any other information that
is required to be provided by the stockholder pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his
capacity as a proponent to a stockholder proposal. In addition to the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act to the extent such regulations require notice that is
different from the notice required above. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b) of
this Section 2. The chairman of the annual meeting shall, if the facts
warrant, determine and declare at the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall
not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled to
vote in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the Secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 2. Such stockholder's
notice shall set forth (i) as to each person, if any, whom the stockholder
proposes to nominate for election or re-election as a Director: (A) the name,
age, business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the corporation that are beneficially owned by such person, (D) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's
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written consent to being named in the proxy statement, if any, as a nominee and
to serving as a Director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to subitems (ii),
(iii) and (iv) of paragraph (b) of this Section 2. At the request of the Board
of Directors, any person nominated by a stockholder for election as a Director
shall furnish to the Secretary of the corporation that information required to
be set forth in the stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a Director of the
corporation unless nominated in accordance with the procedures set forth in
this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective nomination
shall be disregarded.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, or have prepared and made, at
least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 5. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, as amended from time to time, may only be called
as provided in this Section 5 by the President, Chief Executive Officer or
Chairman of the Board and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors. Such request shall
state the purpose or purposes of the proposed meeting. The place, date and
time of any special meeting shall be determined by the Board of Directors.
Such determination shall include the record date for determining the
stockholders having the right of and to vote at such meeting.
Section 6. Notice of Special Meeting. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 7. Action at Special Meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
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Section 8. Quorum and Adjournments.
(a) The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation, as amended from time to time. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally notified. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
(b) When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of statutes
or of the Certificate of Incorporation, as amended from time to time, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 9. Voting Rights. Unless otherwise provided in the
Certificate of Incorporation, as amended from time to time, each stockholder
shall at every meeting of the stockholders be entitled to one (1) vote in
person or by proxy for each share of the capital stock having voting power held
by such stockholder, but no proxy shall be voted on after three (3) years from
its date, unless the proxy provides for a longer period.
Section 10. Action Without Meeting. No action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with these Bylaws, and no action shall be
taken by the stockholders by written consent.
ARTICLE III
Directors
Section 1. Classes, Number, Term of Office and Qualification. At the
1998 Annual Meeting of Stockholders, the Directors shall be classified into
three classes, as nearly equal in number as possible as determined by the Board
of Directors, with the term of office of the first class to expire at the 1999
Annual Meeting of Stockholders, the term of office of the second class to
expire at the 2000 Annual Meeting of Stockholders and the term of office of the
third class to expire at the 2001 Annual Meeting of Stockholders. At each
Annual Meeting of Stockholders following such initial classification and
election, Directors elected to succeed those Directors whose terms expire shall
be elected for a term of office to expire at the third succeeding Annual
Meeting of Stockholders after their election. Additional directorships
resulting from an increase in the number of Directors shall be apportioned
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among the classes as equally as possible as determined by the Board of
Directors. The number of Directors which shall constitute the whole Board
shall be between five (5) and nine (9) Directors, and the exact number shall be
fixed by resolution of the majority of the Board of Directors (notwithstanding
the provisions of Article X, Section 1, paragraph (c)), with the number
initially fixed at six (6). The number of Directors shall be determined by
resolution of sixty-six and two-thirds percent (66-2/3%) of the Directors then
in office or by sixty-six and two-thirds percent (66-2/3%) of the stockholders
at the annual meeting of the stockholders, and each Director elected shall hold
office until his successor is elected and qualified. Directors need not be
stockholders.
Section 2. Vacancies. Vacancies may be filled only by a majority of
the Directors then in office, though less than a quorum, or by a sole remaining
Director. Each Director so chosen shall hold office until a successor is duly
elected and shall qualify or until his earlier death, resignation or removal.
If there are no Directors in office, then an election of Directors may be held
in the manner provided by statute. If, at the time of filling any vacancy, the
Directors then in office shall constitute less than a majority of the whole
Board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such Directors, summarily order an election to be
held to fill any such vacancies, or to replace the Directors chosen by the
Directors then in office.
Section 3. Powers. The business of the corporation shall be managed
by or under the direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation, as amended from time to time,
or by these Bylaws directed or required to be exercised or done by the
stockholders.
Section 4. Regular and Special Meetings. The Board of Directors of
the corporation may hold meetings, both regular and special, either within or
without the State of California.
Section 5. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held without notice other than this Bylaw
immediately after, and at the same place as, the annual meeting of
stockholders. In the event the annual meeting of any newly elected Board of
Directors shall not be held immediately after, and at the same place as, the
annual meeting of stockholders, the meeting may be held at such time and place
as shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors.
Section 6. Notice of Regular Meetings. Regular meetings of the Board
of Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 7. Notice of Special Meetings. Special meetings of the Board
may be called by the Chief Executive Officer or President on no less than
forty-eight (48) hours notice to each Director either personally, or by
telephone, mail, telegram or facsimile; special meetings
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shall be called by the Chief Executive Officer, President or Secretary in like
manner and on like notice on the written request of two Directors unless the
Board consists of only one Director, in which case special meetings shall be
called by the Chief Executive Officer, President or Secretary in like manner
and on like notice on the written request of the sole Director. A written
waiver of notice, signed by the person entitled thereto, whether before or
after the time of the meeting stated therein, shall be deemed equivalent to
notice.
Section 8. Quorum. At all meetings of the Board a majority of the
Directors shall constitute a quorum for the transaction of business and the act
of a majority of the Directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation, as
amended from time to time. If a quorum shall not be present at any meeting of
the Board of Directors, the Directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 9. Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation, as amended from time to time, or these
Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting,
if all members of the Board or committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 10. Meetings by Telephone Conference Calls. Unless otherwise
restricted by the Certificate of Incorporation, as amended from time to time,
or these Bylaws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 11. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the corporation. The
Board may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, as
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amended from time to time, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the Bylaws of the corporation; and, unless the resolution or the
Certificate of Incorporation, as amended from time to time, expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
Section 12. Fees and Compensation. Unless otherwise restricted by
the Certificate of Incorporation, as amended from time to time, or these
Bylaws, the Board of Directors shall have the authority to fix the compensation
of Directors. The Directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
Director. No such payment shall preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for
attending committee meetings.
Section 13. Removal. Subject to any limitations imposed by law or
the Certificate of Incorporation, as amended from time to time, the Board of
Directors, or any individual Director, may be removed from office at any time
only with cause by the affirmative vote of the holders of at least a majority
of shares entitled to vote at an election of Directors.
ARTICLE IV
NOTICES
Section 1. Notice. Whenever, under the provisions of the statutes or
of the Certificate of Incorporation, as amended from time to time, or of these
Bylaws, notice is required to be given to any Director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such Director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to Directors may also be given by
telephone, telegram and facsimile.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation, as amended from time to time, or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
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ARTICLE V
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be
chosen by the Board of Directors and shall be a Chief Executive Officer, a
Chief Financial Officer and a Secretary. The Board of Directors may elect from
among its members a Chairman of the Board and a Vice Chairman of the Board.
The Board of Directors may also choose a President, one or more Vice Presidents
and one or more Assistant Secretaries. Any number of offices may be held by
the same person, unless the Certificate of Incorporation, as amended from time
to time, or these Bylaws otherwise provide.
The compensation of all officers and agents of the corporation
shall be fixed by the Board of Directors, and no officer shall be prevented
from receiving such compensation by virtue of his also being a Director of the
corporation.
Section 2. Election or Appointment. The Board of Directors at its
first meeting after each annual meeting of stockholders shall choose a Chief
Executive Officer, Chief Financial Officer and a Secretary and may choose a
President, one or more Vice Presidents and one or more Assistant Secretaries.
The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 3. Tenure, Removal and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualified.
Any officer elected or appointed by the Board of Directors may be removed at
any time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the corporation shall be filled by the Board
of Directors.
Section 4. Chairman of the Board. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. The Chairman of the Board shall have and may
exercise such powers as are, from time to time, assigned by the Board and as
may be provided by law.
Section 5. Vice Chairman of the Board. In the absence of the
Chairman of the Board, the Vice Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he
shall be present. The Vice Chairman of the Board shall have and may exercise
such powers as are, from time to time, assigned by the Board and as may be
provided by law.
Section 6. Chief Executive Officer. The Chief Executive Officer of
the corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the corporation. The Chief Executive Officer shall preside at all meetings of
the stockholders and, in the absence or nonexistence of a Chairman or Vice
Chairman of the Board at all meetings of the Board of Directors. The Chief
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Executive Officer shall have the general powers and duties of management
usually vested in the Chief Executive Officer of a corporation, including
general supervision, direction and control of the business and supervision of
other officers of the corporation, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the
authority to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
Section 7. President. Subject to such supervisory powers as may be
given by these Bylaws or the Board of Directors to the Chairman of the Board or
the Chief Executive Officer, if there be such officers, the President shall
have general supervision, direction and control of the business and supervision
of other officers of the corporation, and shall have such other powers and
duties as may be prescribed by the Board of Directors or these Bylaws. In the
event a Chief Executive Officer shall not be appointed, the President shall
have the duties of such office.
Section 8. Vice Presidents. The Vice President, or if there shall be
more than one, the Vice Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President, act with all
of the powers and be subject to all the restrictions of the President. The
Vice Presidents shall also perform such other duties and have such other powers
as the Board of Directors, the President or these Bylaws may, from time to
time, prescribe.
Section 9. Secretary. The Secretary shall attend all meetings of the
Board of Directors, all meetings of the committees thereof and all meetings of
the stockholders and record all the proceedings of the meetings in a book or
books to be kept for that purpose. Under the Chief Executive Officer's or
President's supervision, the Secretary shall give, or cause to be given, all
notices required to be given by these Bylaws or by law; shall have such powers
and perform such duties as the Board of Directors, the Chief Executive Officer,
the President or these Bylaws may, from time to time, prescribe; and shall have
custody of the seal of the corporation. The Secretary, or an Assistant
Secretary, shall have authority to affix the seal of the corporation to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his or her signature.
Section 10. Assistant Secretary. The Assistant Secretary, if any, or
if there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors, shall, in the absence, disability or refusal to act of
the Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer, the President, the Secretary or these
Bylaws may, from time to time, prescribe.
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Section 11. Chief Financial Officer. The Chief Financial Officer
shall act as Treasurer and shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of
Directors.
The Chief Financial Officer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his or her transactions as Treasurer and of the financial
condition of the corporation.
If required by the Board of Directors, the Chief Financial
Officer shall give the corporation a bond (which shall be renewed every six
years) in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these Bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by the Board of Directors, the Chief
Executive Officer or the President.
Section 13. Absence or Disability of Officers. In the case of the
absence or disability of any officer of the corporation and of any person
hereby authorized to act in such officer's place during such officer's absence
or disability, the Board of Directors may delegate the powers and duties of
such officer to any officer or to any Director, or to any other person who it
may select.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Certificates of Stock. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President and the Chief Financial Officer or an
Assistant Chief Financial Officer, or the Secretary or an Assistant Secretary
of the corporation, certifying the number of shares owned by him in the
corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative,
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participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
Section 2. Execution of Certificates. Any or all of the signatures
on the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 3. Lost Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfer of Stock. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholder or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
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Section 6. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VII
INDEMNIFICATION
Section 1. Indemnification of Directors and Executive Officers. The
corporation shall indemnify its Directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law; provided,
however, that the corporation may limit the extent of such indemnification by
individual contracts with its Directors and executive officers; and, provided,
further, that the corporation shall not be required to indemnify any Director
or executive officer in connection with any proceeding (or part thereof)
initiated by such person or any proceeding by such person against the
corporation or its Directors, officers, employees or other agents unless (i)
such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the corporation, and
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the Delaware
General Corporation Law.
Section 2. Indemnification of Other Officers, Employees and Other
Agents. The corporation shall have power to indemnify its other officers,
employees and other agents as set forth in the Delaware General Corporation
Law.
Section 3. Good Faith.
(a) For purposes of any determination under this Bylaw, a
Director or officer shall be deemed to have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that any conduct was unlawful, if such
Director's or officer's action is based on information, opinions, reports and
statements, including financial statements and other financial data, in each
case prepared or presented by:
(1) one or more officers or employees of the
corporation whom the Director or executive officer believed to
be reliable and competent in the matters presented;
(2) counsel, independent accountants or other
persons as to matters which the Director or executive officer
believed to be within such person's professional competence;
and
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(3) with respect to a Director, a committee of
the Board upon which such Director does not serve, as to
matters within such Committee's designated authority, which
committee the Director believes to merit confidence; so long
as, in each case, the Director or executive officer acts
without knowledge that would cause such reliance to be
unwarranted.
(b) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which was reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal
proceeding, that the person had reasonable cause to believe that his or her
consent was unlawful.
(c) The provisions of this Section 3 shall not be deemed
to be exclusive or to limit in any way the circumstances in which a person may
be deemed to have met the applicable standard of conduct set forth by the
Delaware General Corporation Law.
Section 4. Expenses. The corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director or officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined
pursuant to Section 4 of this Bylaw, no advance shall be made by the
corporation if a determination is reasonably and promptly made (i) by the Board
of Directors by a majority vote of a quorum consisting of Directors who were
not parties to the proceeding, or (ii) if such quorum is not obtainable, or,
even if obtainable, a quorum of disinterested Directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to the best interests
of the corporation.
Section 5. Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the Director or officer. Any right to indemnification or
advances granted by this Bylaw to a Director or officer shall be enforceable by
or on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his or her claim. The corporation shall be entitled to raise as
a defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the
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amount claimed. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action
or create a presumption that the claimant has not met the applicable standard
of conduct.
Section 6. Non-Exclusivity of Rights. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, as amended from time to time, Bylaws, agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
office. The corporation is specifically authorized to enter into individual
contracts with any or all of its Directors, officers, employees or agents
respecting indemnification and advances, to the fullest extent not prohibited
by the Delaware General Corporation Law.
Section 7. Survival of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8. Insurance. To the fullest extent permitted by the
Delaware General Corporation Law, the corporation, upon approval by the Board
of Directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Bylaw.
Section 9. Amendments. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
Section 10. Saving Clause. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
Section 11. Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of the testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
-14-
<PAGE> 15
(b) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its Directors, officers, and employees or agents, so that any person
who is or was a Director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Bylaw with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(d) References to a "Director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a Director,
officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(e) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references
to "serving at the request of the corporation" shall include any service as a
Director, officer, employee or agent of the corporation which imposes duties
on, or involves services by, such Director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Bylaw.
ARTICLE VIII
LOANS TO OFFICERS
Section 1. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee
who is a Director of the Corporation or its subsidiaries, whenever, in the
judgment of the Board of Directors, such loan, guarantee or assistance may
reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing in
this Bylaw shall be deemed to deny, limit or restrict the powers of guaranty or
warranty of the corporation at common law or under any statute.
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<PAGE> 16
ARTICLE IX
GENERAL PROVISIONS
Section 1. Declaration of Dividends. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation, as amended from time to time, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation, as amended from
time to time.
Section 2. Dividend Reserve. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purposes as the Directors shall think conducive
to the interest of the corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
Section 3. Execution of Corporate Instruments. All checks or demands
for money and notes of the corporation shall be signed by such officer or
officers or such other person or persons as the Board of Directors may from
time to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. Corporate Seal. The Board of Directors may adopt a
corporate seal having inscribed thereon the name of the corporation, the year
of its organization and the words "Corporate Seal, Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE X
AMENDMENTS
Section 1. Amendments.
(a) Except as otherwise set forth in Section 9 of
Article VII of these Bylaws, the Bylaws may be altered or amended or new Bylaws
adopted by the affirmative vote of a majority of the voting power of all of the
then-outstanding shares of capital stock of the corporation entitled to vote
generally in the election of Directors (the "Voting Stock"). The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors by the Certificate of Incorporation, as amended from time to time,
to adopt, amend or repeal Bylaws by a vote of the majority of the Board of
Directors unless a greater or different vote is required pursuant to the
provisions of the Bylaws, the Certificate of Incorporation or any applicable
provision of law.
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<PAGE> 17
(b) Notwithstanding any other provisions of these
Bylaws or any provision of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any particular
class or series of the Voting Stock required by law, the Certificate of
Incorporation, as amended from time to time, or any Preferred Stock Designation
(as the term is defined in the Certificate of Incorporation, as amended), the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal this paragraph (b) or Section 2, Section 5 or Section 10 of
Article II or Section 1, Section 2 or Section 13 of Article III of these
Bylaws.
(c) Notwithstanding any other provisions of these
Bylaws or any provision of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any particular
class or series of the Voting Stock required by law, the Certificate of
Incorporation, as amended from time to time, or any Preferred Stock Designation
(as the term is defined in the Certificate of Incorporation, as amended from
time to time), the affirmative vote of at least sixty-six and two-thirds
percent (66-2/3%) of the Continuing Directors (as defined below), shall be
required to alter, amend or repeal this paragraph (c) or Section 2, Section 5
or Section 10 of Article II or Section 1, Section 2 or Section 13 of Article
III of these Bylaws. For purposes of this paragraph, "Continuing Director"
shall mean either (i) those Directors (the "Original Directors") who are
members of the Board of Directors on the date these Restated Bylaws are
adopted; or (ii) Directors who are nominated for election or are elected by (A)
a majority of the six (6) Original Directors or (B) Directors, constituting a
then majority of the Board of Directors, who were all either Original Directors
or were nominated for election or elected by a then majority of the Board of
Directors whose nomination or election can be traced directly through other
Directors to the Original Directors.
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<PAGE> 18
CERTIFICATE OF SECRETARY
The undersigned, being the Secretary of CombiChem, Inc., a Delaware
corporation, does hereby certify the foregoing to be the Bylaws of said
Corporation, as adopted by the requisite vote or votes of the stockholders and
Directors of the Corporation and which remain in full force and effect as of
the date hereof.
Executed at San Diego, California effective as of_______, 1997.
__________________________________
Faye H. Russell, Secretary
<PAGE> 1
EXHIBIT 5.1
October 15, 1997
CombiChem, Inc.
9050 Camino Santa Fe
San Diego, CA 92121
Re: 2,587,500 Shares of Common Stock of CombiChem, Inc.
Ladies and Gentlemen:
We have acted as counsel to CombiChem, Inc., a Delaware corporation (the
"Company"), in connection with the proposed issuance and sale by the Company of
up to 2,587,500 shares of the Company's Common Stock (the "Shares"), pursuant to
the Company's Registration Statement on Form S-1 filed on October 15, 1997 (the
"Registration Statement").
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 under the
Securites Act of 1933, as amended (the "Act").
In connection with this opinion, we have examined the Registration
Statement and related Prospectus, the Company's Certificate of Incorporation, as
amended through the date hereof, the Amended and Restated Certificate of
Incorporation, which the Registration Statement contemplates will become
effective immediately prior to the issuance and sale of the Shares, the
Company's bylaws, as amended through the date hereof, the restated bylaws which
the Registration Statement contemplates will become effective immediately prior
to the issuance and sale of the Shares and the originals, or copies certified to
our satisfaction, of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below (the "Documents"). We are relying (without
any independent investigation thereof) upon the truth and accuracy of the
statements set forth in such Documents.
On the basis of the foregoing, and in reliance thereon, 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 Prospectus (as amended and
supplemented through the date of issuance) will be validly issued, fully paid
and nonassessable.
<PAGE> 2
CombiChem, Inc. October 15, 1997
Page 2
We consent to the filing of this opinion 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 or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
This opinion is expressed as of the date hereof and we disclaim any
undertaking to advise you of any subsequent changes in applicable law or in the
facts stated or assumed herein 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 10.1
PREFERRED STOCK PURCHASE AGREEMENT
(600,000 Shares of Series A Preferred Stock)
By and Between
ChemCom Pharmaceuticals, Inc.,
a California corporation
and
Forward Ventures II, L.P.,
a Delaware limited partnership
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Sale of Preferred Shares . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Representations and Warranties of the Company . . . . . . . . . . . . . 1
(a) Organization and Standing; Articles and Bylaws . . . . . . . . . 1
(b) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Validity of the Shares . . . . . . . . . . . . . . . . . . . . . 2
4. Representations and Warranties of the Purchaser . . . . . . . . . . . . 2
(a) Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Investment Intent . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Reliance Upon the Purchaser's Representations . . . . . . . . . 3
(d) Restricted Securities . . . . . . . . . . . . . . . . . . . . . 3
(e) Receipt of Information . . . . . . . . . . . . . . . . . . . . . 3
(f) Investment Experience . . . . . . . . . . . . . . . . . . . . . 3
(g) Limitations on Disposition . . . . . . . . . . . . . . . . . . . 4
(h) Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. Market Standoff Agreement . . . . . . . . . . . . . . . . . . . . . . . 4
6. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Delivery of Financial Statements . . . . . . . . . . . . . . . . 5
(b) Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Termination of Covenants . . . . . . . . . . . . . . . . . . . . 5
(d) Stock Registration . . . . . . . . . . . . . . . . . . . . . . . 5
7. The Purchaser's Right to Purchase Additional Shares . . . . . . . . . . 5
8. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Further Instruments and Actions . . . . . . . . . . . . . . . . 8
(b) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 8
(e) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 8
(f) Counsel to the Company . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<PAGE> 3
PREFERRED STOCK PURCHASE AGREEMENT
(600,000 Shares of Series A Preferred Stock)
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made
as of August 26, 1994, by and between ChemCom Pharmaceuticals, Inc., a
California corporation (the "Company"), and Forward Ventures II, L.P., a
Delaware limited partnership (the "Purchaser," which term includes successors
and assigns).
WHEREAS, the Purchaser desires to make a cash payment to the Company
as consideration for obtaining a fixed number of preferred shares of the
Company's capital stock; and
WHEREAS, the Company desires to sell a fixed number of preferred
shares of the Company's capital stock to the Purchaser; and
WHEREAS, certain defined terms used in this Agreement are referenced
in Section 8 hereof.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Sale of Preferred Shares. Subject to the terms and conditions
of this Agreement, the Purchaser hereby purchases, and the Company hereby sells
to the Purchaser, six hundred thousand (600,000) shares of the Company's Series
A Preferred Stock (the "Shares") at a price of fifty cents ($0.50) per share,
for an aggregate sum of three hundred thousand dollars ($300,000.00) (the
"Purchase Price").
2. Closing. The purchase and sale of the Shares shall take place
at the offices of the Company, simultaneous with the execution of this
Agreement, or at such other place and time as the Company and the Purchaser
shall mutually agree, either orally or in writing (the "Closing"). At the
Closing, the Purchaser shall pay the Purchase Price to the Company by check,
wire transfer, cancellation of indebtedness, or such other form of payment as
shall be mutually agreed upon by the Purchaser and the Company. At the
Closing, subject to the terms and conditions hereof, the Company shall deliver
to the Purchaser a certificate, registered in the name the Purchaser designates
by notice to the Company, representing the Shares purchased by the Purchaser,
dated the date of the Closing.
3. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
(a) Organization and Standing; Articles and Bylaws. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of California, and has all requisite corporate
power and authority to own and operate its properties and assets and to carry
on its business as presently conducted. The Company has furnished the
Purchaser or its special counsel with copies of its Articles of Incorporation
and its Bylaws. Said
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<PAGE> 4
copies are true, correct, and complete and contain all amendments through the
date of the Closing.
(b) Capitalization. The authorized capital stock of the
Company, immediately prior to the Closing, will consist of (a) 30,000,000
shares of no par value Common Stock, 1,825,000 shares of which are issued and
outstanding or committed for issuance on the date hereof; and (b) 10,000,000
shares of no par value Preferred Stock, of which: (i) 1,000,000 shares have
been designated Series A Preferred Stock, 600,000 shares of which are being
sold and issued to the Purchaser pursuant to this Agreement; and (ii) 1,500,000
shares have been designated Series Z Preferred Stock, 600,000 shares of which
are issued and outstanding or reserved for issuance on the date hereof. All
issued and outstanding shares of the Company's capital stock have been duly
authorized and validly issued and are fully paid and nonassessable.
(c) Authorization. All corporate action on the part of
the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
the Company's obligations under this Agreement and the Stock Registration
Rights Agreement, and for the authorization, issuance, sale and delivery of the
Shares and the Common Shares issuable upon conversion thereof ("Underlying
Common Shares") has been taken prior to the Closing. This Agreement, when
executed and delivered by the Company and the Purchasers, and the Stock
Registration Rights Agreement shall constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors.
(d) Validity of the Shares. The Shares and the
Underlying Common Shares will be validly issued, fully paid and nonassessable.
4. Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows:
(a) Authorization. The Purchaser has the requisite legal
power and authority to enter into this Agreement and that this Agreement when
executed shall constitute a valid and legally binding obligation of the
Purchaser.
(b) Investment Intent. This Agreement is made with the
Purchaser in reliance upon its representation to the Company, which by its
execution hereof it confirms, that the Shares have been acquired with its own
funds for investment for an indefinite period for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that it has no present intention of selling, granting
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchaser further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer, or
grant participations, to such person or to any third person, with respect to
any of the Shares.
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<PAGE> 5
(c) Reliance Upon the Purchaser's Representations. The
Purchaser understands (i) that the Shares are not, and the Underlying Common
Shares acquired on conversion thereof at the time of issuance may not be,
registered under the Securities Act or qualified under the California Corporate
Securities Law of 1968, as amended (the "Law"), and (ii) that the Shares are
being issued to the Purchaser on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to Section 4(2) thereof and/or Regulation D
promulgated thereunder and the exemption from qualification provided by Section
25102(f) of the Law, and (iii) that the Company's reliance on such exemptions
is predicated on the Purchaser's representations set forth herein. The
Purchaser realizes that the basis for the exemptions may not be present if,
notwithstanding such representations, the Purchaser has in mind merely
acquiring the Shares for a fixed or determinable period in the future, or for a
market rise, or for sale if the market does not rise. The Purchaser does not
have any such intention. These exemptions only exempt the issuance of the
Shares to the Purchaser and not any sale or other disposition of the Shares or
any interest therein by the Purchaser.
(d) Restricted Securities. The Purchaser hereby confirms
that the Purchaser has been informed that the Shares are restricted securities
under the Securities Act and may not be resold or transferred unless the Shares
are first registered under the Federal securities laws or unless an exemption
from such registration is available. In addition, the Purchaser understands
that any resale or transfer must comply with applicable state securities laws.
Accordingly, the Purchaser hereby acknowledges that the Purchaser is prepared
to hold the Shares for an indefinite period, and that the Purchaser is familiar
with the provisions of Rule 144 of the Securities and Exchange Commission
issued under the Securities Act, and is aware that Rule 144 is not presently
available to exempt the sale of the Shares from the registration requirements
of the Securities Act.
(e) Receipt of Information. The Purchaser acknowledges
that it has received all the information it considers necessary or appropriate
for deciding whether to purchase the Shares. The Purchaser further represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Shares and
the business, properties, prospects, and financial condition of the Company,
and to obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy or any information furnished to it or to which
it had access.
(f) Investment Experience. In connection with the
investment representations made herein, the Purchaser represents that it is an
"accredited investor' as defined in Section 501 of Regulation D, has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment, has the ability to bear the
economic risks of its investment and has been furnished with and has had access
to all of the information it considers necessary or appropriate to evaluate the
risks and merits of an investment in the Shares, and has had an opportunity to
discuss the Company's business, management and financial affairs with the
Company's management.
-3-
<PAGE> 6
(g) Limitations on Disposition. The purchaser agrees
that in no event will it make a disposition of any of the Shares, unless and
until (a) it shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (b) it shall have furnished the
Company with an opinion of counsel satisfactory to the Company to the effect
that (i) such disposition will not require registration of such Shares under
the Securities Act, or (ii) that appropriate action necessary for compliance
with the Securities Act has been taken, or (c) the Company shall have waived,
expressly and in writing, its rights under clauses (a) and (b) of this
subparagraph. The opinion shall also indicate that the disposition is exempt
from, in compliance with, or qualified under all applicable state securities
laws.
(h) Legends. All certificates representing any shares of
Shares of the Company subject to the provisions of this Agreement shall have
endorsed thereon customary legends regarding:
(1) Restrictions on transfer under the Federal
Securities Act of 1933.
(2) Market Stand-Off Agreements pursuant to
Section 5 hereof.
(3) Any legend required by state securities laws.
5. Market Stand-Off Agreement.
(a) In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, including the Company's initial
public offering, the Purchaser shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to the Shares without the prior written consent of
the Company or its underwriters. Such limitations shall be in effect for one
hundred eighty (180) days from and after the effective date of such
registration statement or such longer time as may be required by the Company's
underwriters. The limitations of this Section 5 shall remain in effect for the
two-year period immediately following the effective date of the Company's
initial public offering and shall thereafter terminate and cease to have any
force or effect.
(b) In the event any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding common
shares is effected without receipt of consideration, then any new, substituted
or additional securities distributed with respect to the Shares shall be
immediately subject to the provisions of this Section 5 to the same extent the
Shares are at such time covered by such provisions.
(c) In order to enforce the limitations of this Section
5, the Company may impose stop-transfer instructions with respect to the Shares
until the end of the applicable stand-off period.
-4-
<PAGE> 7
(d) The obligations in this Section 5 shall not apply to
a registration relating solely to employee benefit plan shares or to a Rule 145
transaction registered on Form S-4.
6. Covenants of the Company.
(a) Delivery of Financial Statements. The Company shall
deliver to the Purchaser:
(1) as soon as practicable after the end of each
fiscal year of the Company, audited financial statements for such fiscal year,
prepared in accordance with generally accepted accounting principles ("GAAP")
together with an annual report of the Company;
(2) as soon as practicable after the end of each
of the first three (3) quarters of each fiscal year of the Company, unaudited
financial statements for such fiscal quarter;
(3) such other information relating to the
financial condition, business, prospects or corporate affairs of the Company as
the Purchaser or any assignee of the Purchaser may from time to time reasonably
request, provided, however, that the Company shall not be obligated under
provision of this Agreement to provide information which it deems in good faith
to be a trade secret or similar confidential information.
(b) Inspection. The Company shall permit the Purchaser,
at the Purchaser's expense, to visit and inspect the Company's properties, to
examine its books of account and records, and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Purchaser; provided, however, that the Company shall not be
obligated pursuant to this section to provide access to any information which
it reasonably considers to be a trade secret or similar confidential
information.
(c) Termination of Covenants. The covenants set forth in
this Section 6 shall terminate and be of no further force or effect upon the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Securities Act in connection with the firm
commitment underwritten offering of its securities to the general public.
(d) Stock Registration. Simultaneous with entering into
this Agreement, the Company and the Purchaser are also entering into a Stock
Registration Rights Agreement which grants certain rights to the Purchaser to
have the Underlying Common Shares registered.
7. The Purchaser's Right to Purchase Additional Shares.
(a) Subject to the terms and conditions specified in this
Section 7, the Company hereby grants to the Purchaser a right to purchase a pro
rata share of New Securities (as hereinafter defined) equal to the ratio of (i)
the number of Common Shares owned by the Purchaser immediately prior to the
issuance of New Securities, assuming full conversion into Common Shares of all
convertible securities held by the Purchaser, and (ii) to the total number
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<PAGE> 8
of Common Shares outstanding immediately prior to the issuance of New
Securities, assuming full conversion into Common Shares of all convertible
securities outstanding prior to the issuance of the New Securities (the "Pro
Rata Share"). For purposes of this Section 7, a Purchaser includes any general
partners and affiliates of a Purchaser. A Purchaser shall be entitled to
apportion the right to purchase additional Shares hereby granted it among
itself and its partners and affiliates in such proportions as it deems
appropriate.
Not later than thirty calendar days after the Company sells
any shares solely for cash (excluding however securities described in Section
7(e) hereof), including any common shares, preferred shares, or securities
convertible into any shares ("New Securities"), the Company shall make an
offering of some of the New Securities to the Purchaser in accordance with the
following provisions:
(b) The Company shall deliver a notice by certified mail
("Notice') to the Purchaser stating (i) the number of New Securities sold and
available for sale, (ii) the number of such New Securities the Purchaser is
entitled to purchase, as the Purchaser's Pro Rata Share, and (iii) the price
and terms upon which the New Securities were sold or are to be sold.
(c) Within 20 calendar days after the Company provides
such Notice, each Purchaser may elect to purchase or obtain, at the price and
on the terms specified in the Notice, up to the Purchaser's Pro Rata Share of
the New Securities.
(d) If any party elects not to obtain its Pro Rata Share
of the New Securities, the Company may, during the 90-day period following the
expiration of the period provided in subsection 7(c) hereof, assign the right
to purchase the remaining unsubscribed portion of such New Securities to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Notice without offering any of such
un-subscribed New Securities to the Purchaser. If the Company does not enter
into an agreement for the sale of the New Securities within such period, or if
such agreement is not consummated within such 90-day period, the Company's
right to assign the right to purchase the New Securities provided hereunder
shall be deemed to be revoked and such New Securities shall not be offered to
any third party unless first re-offered to the Purchaser in accordance
herewith.
(e) Notwithstanding any other provision to the contrary,
the right to purchase New Securities contained in this Section 7 shall not be
applicable (i) to the issuance or sale of common shares (or options thereof) to
employees, officers, directors, or consultants for the primary purpose of
soliciting or retaining their service which are approved by the Board of
Directors; (ii) to or after the consummation of a bona fide, firmly
underwritten public offering of shares of common stock, registered under the
Securities Act pursuant to a registration statement; (iii) the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities; (iv) the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of shares or otherwise; (v) to any borrowings,
direct or indirect, from any lender or other persons by the Company, whether or
not presently authorized, including any type or loan or payment evidenced by
any type of debt instrument; (vi) to securities issued to vendors, lessors,
landlords, customers or to other persons in similar commercial situations with
the Company if
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<PAGE> 9
such issuance is approved by the Board of Directors; (vii) to securities issued
in connection with obtaining lease financing, whether issued to a lessor,
guarantor or other person; (viii) to securities issued in connection with any
stock split, stock dividend or recapitalization of the Company; and (ix) to
securities issued to persons or entities with which the Company has business
relationships provided that such issuances are for other than primarily equity
financing purposes.
(f) The right to purchase New Securities set forth in
this Section 7 may not be assigned or transferred except that (i) such right is
assignable by the Purchaser to any wholly owned subsidiary or parent of, or to
any corporation or entity that is, within the meaning of the Act, controlling,
controlled by or under common control with, any such Purchaser, and (ii) such
right is assignable between and among any of the Purchasers of the Company's
preferred stock.
8. Defined Terms. When used herein the following defined terms
shall have the respective definitions as set forth below:
Accredited Investor shall have the meaning set forth in Section 4(f).
Agreementshall have the meaning set forth in the first paragraph.
Closingshall have the meaning set forth in Section 2.
Companyshall have the meaning set forth in first paragraph.
GAAPshall have the meaning set forth in Section 6(a)(1).
Law shall have the meaning set forth in Section 4(c).
New Securities shall have the meaning set forth in Section 7(a).
Notice shall have the meaning set forth in Section 7(b).
Pro Rata Shareshall have the meaning set forth in Section 7(a).
Purchase Price shall have the meaning set forth in Section 1.
Purchasershall have the meaning set forth in the first paragraph.
Shares shall have the meaning set forth in Section 1.
Underlying Common Sharesshall have the meaning set forth in Section
3(c).
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<PAGE> 10
9. Miscellaneous.
(a) Further Instruments and Actions. The parties agree
to execute such further instruments and to take such further action as may
reasonably be necessary to carry out the intent of this Agreement.
(b) Notices. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail with postage and fees prepaid, addressed to the other party
hereto at its address hereinafter shown below its signature or at such other
address as such party may designate by advance written notice to the other
party hereto.
(c) Governing Law. This Agreement has been negotiated,
executed and delivered in the State of California. The parties hereto agree
that all questions pertaining to the validity and interpretation of this
Agreement shall be determined in accordance with the laws of the State of
California.
(d) Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of the successors and assigns of the Company and, subject to the restrictions
on transfer herein set forth, be binding upon the Purchaser, its successors and
assigns.
(e) Amendments and Waivers. This Agreement represents
the entire understanding of the parties with respect to the subject matter
hereof and supersedes all previous understandings, written or oral. This
Agreement may only be amended with the written consent of the parties hereto,
or the successors or assigns of the foregoing, and no oral waiver or amendment
shall be effective under any circumstances whatsoever.
(f) Counsel to the Company. The Purchaser acknowledges
and agrees that this Agreement has been prepared by Gray Cary Ware &
Freidenrich, counsel to the Company, which counsel has represented the
interests of the Company and not those of the Purchaser with respect to the
transactions documented by this Agreement. The Purchaser further acknowledges
and agrees that the Purchaser has been provided the opportunity and encouraged
to consult with counsel of the Purchaser's own choosing with respect to this
Agreement. The Purchaser certifies and acknowledges that the Purchaser has
carefully read all of the provisions of this Agreement and that the Purchaser
fully understands and shall fully and faithfully comply with such provisions.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
COMPANY:
ChemCom Pharmaceuticals, Inc.,
a California corporation
By: /s/ Standish Fleming
-----------------------------------
Standish Fleming, President
Address: 10975 Torreyana Road
Suite 250
San Diego, California 92121
PURCHASER:
Forward Ventures II, L.P.,
a Delaware limited partnership
By: Forward 11 Associates, L.P.,
a Delaware limited partnership
its General Partner
By: /s/ Standish Fleming
------------------------------
Standish Fleming,
a General Partner
Address: 10975 Torreyana Road
Suite 250
San Diego, California 92121
[Signature Page to Series A Preferred Stock Purchase Agreement]
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<PAGE> 1
EXHIBIT 10.2
PREFERRED STOCK PURCHASE AGREEMENT
(200,000 Shares of Series Z Preferred Stock)
By and Between
CombiChem, Inc.,
a California corporation
and
Dr. Sydney Brenner
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Sale of Preferred Stock..................................................... 1
2. Closing..................................................................... 1
3. Representations and Warranties by the Company............................... 2
(a) Organization and Standing; Articles and Bylaws....................... 2
(b) Capitalization....................................................... 2
(c) Authorization........................................................ 2
(d) Validity of the Shares............................................... 2
4. Representations and Warranties by the Purchaser............................. 2
(a) Authorization........................................................ 2
(b) Investment Intent.................................................... 3
(c) Reliance Upon the Purchaser's Representations........................ 3
(d) Restricted Securities................................................ 3
(e) Receipt of Information............................................... 3
(f) Investment Experience................................................ 4
(g) Limitations on Disposition........................................... 4
(h) Public Sale.......................................................... 4
(i) Legends.............................................................. 4
5. Company Right of First Refusal.............................................. 5
6. Market Standoff Agreement................................................... 5
7. Covenants of the Company.................................................... 5
(a) Delivery of Financial Statements..................................... 5
(b) Termination of Covenants............................................. 6
(c) Stock Registration................................................... 6
8. Defined Terms............................................................... 6
9. Miscellaneous............................................................... 6
(a) Further Instruments and Actions...................................... 6
(b) Notices.............................................................. 7
(c) Governing Law........................................................ 7
(d) Successors and Assigns............................................... 7
(e) Amendments and Waivers............................................... 7
(f) Counsel to the Company............................................... 7
</TABLE>
<PAGE> 3
EXHIBITS
Exhibit A Technology List
Exhibit B Patent Assignment Agreement
Exhibit C Consent of Spouse
<PAGE> 4
PREFERRED STOCK PURCHASE AGREEMENT
(200,000 Shares of Series Z Preferred Stock)
THIS SERIES Z PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made as
of October 12, 1994, by and between CombiChem, Inc., a California corporation
(the "Company"), and Dr. Sydney Brenner (the "Purchaser," which term includes
Purchaser's heirs, executors, guardians, successors and assigns).
WHEREAS, the Purchaser is the owner of certain intellectual property
rights and other rights to technology as set forth on Exhibit A (the
"Technology");
WHEREAS, the Purchaser desires to transfer all of Purchaser's rights,
title and interest to the Technology to the Company as consideration for
obtaining a fixed number of shares of the Company's preferred stock; and
WHEREAS, the Company desires to obtain all of the Purchaser's right, title
and interest to the Technology and the Company is willing to sell a fixed number
of shares of the Company's preferred stock to Purchaser to obtain such rights
and stock.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Sale of Preferred Stock. Subject to the terms and conditions of this
Agreement, the Purchaser hereby purchases, and the Company hereby sells to the
Purchaser, 200,000 shares of the Company's Series Z Preferred Stock (the
"Shares") at a price per share of fifty cents ($0.50). As consideration for the
Shares, the Purchaser hereby transfers and assigns to the Company all of the
Purchaser's right, title and interest in and to the Technology. The Parties
agree that the Technology has an aggregate value of one hundred thousand dollars
($100,000). The Purchaser also agrees to execute any additional agreements,
instruments or documents which the Company, in its absolute discretion, deems
necessary or appropriate to transfer the Technology to the Company.
2. Closing. The purchase and sale of the Shares shall take place at the
offices of the Company, simultaneous with the execution of this Agreement, or at
such other place and time as the Company and the Purchaser shall mutually agree,
either orally or in writing (the "Closing"). At the Closing, Purchaser shall
deliver to the Company such agreements, instruments and documents as may be
necessary to effect the transfer of the Technology to the Company, including,
but not limited to, six (6) duly executed patent assignment agreements
substantially in the form attached hereto as Exhibit B (individually a "Patent
Assignment Agreement"). Promptly following the Closing, Purchaser shall deliver
to the Company a duly executed Consent of Spouse agreement in the form attached
hereto as Exhibit C. Within ten (10) business days following the Closing, after
the Purchaser has delivered the Consent of Spouse agreement, the Company shall
deliver to the Purchaser a certificate, registered in the name the Purchaser
designates by notice
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<PAGE> 5
to the Company, representing the Shares to be purchased by the Purchaser from
the Company, dated the date of the Closing.
3. Representations and Warranties by the Company.
The Company hereby represents and warrants to the Purchaser as
follows:
(a) Organization and Standing; Articles and Bylaws. The Company is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of California, and has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as presently conducted. The Company has furnished the Purchaser or its
special counsel with copies of its Articles of Incorporation and its Bylaws.
Said copies are true, correct, and complete and contain all amendments through
the date of the Closing.
(b) Capitalization. The authorized capital stock of the Company,
immediately prior to the Closing, will consist of (a) 30,000,000 shares of no
par value Common Stock, 1,825,000 shares of which are issued and outstanding or
committed for issuance on the date hereof; and (b) 10,000,000 shares of no par
value Preferred Stock, of which: (i) 1,000,000 shares have been designated
Series A Preferred Stock, 1,000,000 shares of which are issued and outstanding
or committed for issuance on the date hereof; and (ii) 1,500,000 shares have
been designated Series Z Preferred Stock, 200,000 shares of which are being sold
and issued to Purchaser pursuant to this Agreement. All issued and outstanding
shares of the Company's capital stock have been duly authorized and validly
issued and are fully paid and nonassessable.
(c) Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
the Company's obligations under this Agreement and the Stock Registration Rights
Agreement, and for the authorization, issuance, sale and delivery of the Shares
and the Common Shares issuable upon conversion thereof ("Underlying Common
Shares") has been taken prior to the Closing. This Agreement, when executed and
delivered by the Company and the Purchasers, and the Stock Registration Rights
Agreement shall constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of
debtors.
(d) Validity of the Shares. The Shares and the Underlying Common
Shares will be validly issued, fully paid and nonassessable.
4. Representations and Warranties by the Purchaser.
The Purchaser hereby represents and warrants to the Company as
follows:
(a) Authorization. The Purchaser has the requisite legal power and
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<PAGE> 6
authority to enter into this Agreement and that this Agreement when executed
shall constitute a valid and legally binding obligation of the Purchaser.
(b) Investment Intent. This Agreement is made with the Purchaser
in reliance upon Purchaser's representation to the Company, which by Purchaser's
execution hereof Purchaser confirms, that the Shares have been acquired with
Purchaser's own property (transfer of the Technology) for investment for an
indefinite period for Purchaser's own account, not as a nominee or agent, and
not with a view to the sale or distribution of any part thereof, and that
Purchaser has no present intention of selling, granting participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that Purchaser does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer, or grant
participations, to such person or to any third person, with respect to any of
the Shares.
(c) Reliance Upon the Purchaser's Representations. The Purchaser
understands (i) that the Shares are not, and the Underlying Common Shares
acquired on conversion thereof at the time of issuance may not be, registered
under the Securities Act or qualified under the California Corporate Securities
Law of 1968, as amended (the "LAW"), and (ii) that the Shares are being issued
to the Purchaser on the ground that the sale provided for in this Agreement and
the issuance of securities hereunder is exempt from registration under the
Securities Act pursuant to Section 4(2) thereof and/or Regulation D promulgated
thereunder and the exemption from qualification provided by Section 25102(f) of
the Law, and (iii) that the Company's reliance on such exemptions is predicated
on the Purchaser's representations set forth herein. The Purchaser realizes that
the basis for the exemptions may not be present if, notwithstanding such
representations, the Purchaser has in mind merely acquiring the Shares for a
fixed or determinable period in the future, or for a market rise, or for sale if
the market does not rise. The Purchaser does not have any such intention. These
exemptions only exempt the issuance of the Shares to the Purchaser and not any
sale or other disposition of the Shares or any interest therein by the
Purchaser.
(d) Restricted Securities. The Purchaser hereby confirms that the
Purchaser has been informed that the Shares are restricted securities under the
Securities Act and may not be resold or transferred unless the Shares are first
registered under the Federal securities laws or unless an exemption from such
registration is available. In addition, the Purchaser understands that any
resale or transfer must comply with applicable state securities laws.
Accordingly, the Purchaser hereby acknowledges that the Purchaser is prepared to
hold the Shares for an indefinite period, and that the Purchaser is familiar
with the provisions of Rule 144 of the Securities and Exchange Commission issued
under the Securities Act, and is aware that Rule 144 is not presently available
to exempt the sale of the Shares from the registration requirements of the
Securities Act.
(e) Receipt of Information. The Purchaser acknowledges that
Purchaser has received all the information Purchaser considers necessary or
appropriate for deciding whether to purchase the Shares. The Purchaser further
represents that Purchaser has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of
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<PAGE> 7
the offering of the Shares and the business, properties, prospects, and
financial condition of the Company, and to obtain additional information (to the
extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy or any
information furnished to Purchaser or to which Purchaser had access.
(f) Investment Experience. In connection with the investment
representations made herein the Purchaser represents that Purchaser has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of Purchaser's investment, has the ability to
bear the economic risks of Purchaser's investment and has been furnished with
and has had access to all of the information Purchaser considers necessary or
appropriate to evaluate the risks and merits of an investment in the Shares, and
has had an opportunity to discuss the Company's business, management and
financial affairs with the Company's management.
(g) Limitations on Disposition. The Purchaser agrees that in no
event will Purchaser make a disposition of any of the Shares, unless and until
(a) Purchaser shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (b) Purchaser shall have furnished the
Company with an opinion of counsel satisfactory to the Company to the effect
that (i) such disposition will not require registration of such Shares under the
Securities Act, or (ii) that appropriate action necessary for compliance with
the Securities Act has been taken, or (c) the Company shall have waived,
expressly and in writing, its rights under clauses (a) and (b) of this
subparagraph. The opinion shall also indicate that the disposition is exempt
from, in compliance with, or qualified under all applicable state securities
laws.
(h) Public Sale. The Purchaser agrees not to make, without the
prior written consent of the Company, any public offering or sale of the Shares,
or of the Underlying Common Shares, although permitted to do so pursuant to Rule
144(k) promulgated under the Securities Act, until the earlier of (i) six months
after the date on which the Company effects its initial registered public
offering pursuant to the Securities Act, or (ii) five years after the date of
the Closing of this Agreement.
(i) Legends. All certificates representing any shares of Shares of
the Company subject to the provisions of this Agreement shall have endorsed
thereon customary legends regarding:
(1) Restrictions on transfer under the Federal Securities
Act of 1933.
(2) Market Standoff Agreement pursuant to Section 6 hereof.
(3) Rights of First refusal upon any resale of the Shares,
pursuant to Section 5 hereof.
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<PAGE> 8
(4) Any legend required by state securities laws.
5. Company Right of First Refusal. Before any shares of the Company
registered in the name of the Purchaser may be sold or transferred (including
transfer by operation of law or other involuntary transfer, but excluding
transfers by gift, will or intestate succession of the Purchaser) such shares
shall first be offered to the Company in the manner and in accordance with the
procedures and terms as set forth in Article VI of the Company's Bylaws. This
right of first refusal shall terminate upon the closing of the Company's initial
public offering of the common shares of the Company.
6. Market Standoff Agreement.
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the Securities Act, including the Company's initial public offering,
the Purchaser shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for value
or otherwise agree to engage in any of the foregoing transactions with respect
to the Shares without the prior written consent of the Company or its
underwriters. Such limitations shall be in effect for one hundred eighty (180)
days from and after the effective date of such registration statement or such
longer time as may be required by the Company's underwriters. The limitations of
this Section 6 shall remain in effect for the two-year period immediately
following the effective date of the Company's initial public offering and shall
thereafter terminate and cease to have any force or effect.
(b) In the event any stock dividend, stock split, recapitalization
or other change affecting the Company's outstanding common shares is effected
without receipt of consideration, then any new, substituted or additional
securities distributed with respect to the Shares shall be immediately subject
to the provisions of this Section 6 to the same extent the Shares are at such
time covered by such provisions.
(c) In order to enforce the limitations of this Section 6, the
Company may impose stop-transfer instructions with respect to the Shares until
the end of the applicable stand-off period.
(d) The obligations in this Section 6 shall not apply to a
registration relating solely to employee benefit plan shares or to a Rule 145
transaction registered on Form S-4.
7. Covenants of the Company.
(a) Delivery of Financial Statements. The Company shall deliver to
the Purchaser:
(1) as soon as practicable after the end of each fiscal year
of the
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<PAGE> 9
Company, audited financial statements for such fiscal year, prepared in
accordance with generally accepted accounting principles ("GAAP") together with
an annual report of the Company; and
(2) As soon as practicable after the end of each of the
first three (3) quarters of each fiscal year of the Company, unaudited financial
statements for such fiscal quarter.
(b) Termination of Covenants. The covenants set forth above in
this Section 7 shall terminate and be of no further force or effect upon the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm commitment
underwritten offering of its securities to the general public.
(c) Stock Registration. Simultaneous with entering into this
Agreement, the Company and the Purchaser are also entering into a Stock
Registration Rights Agreement which grants certain rights to the Purchaser to
have the Underlying Common Shares registered.
8. Defined Terms.
When used herein the following defined terms shall have the
respective definitions as set forth below:
Agreement shall have the meaning set forth in the first paragraph.
Closing shall have the meaning set forth in Section 2.
Company shall have the meaning set forth in the first paragraph.
GAAP shall have the meaning set forth in Section 7(a)(1).
Law shall have the meaning set forth in Section 4(c).
The Purchaser shall have the meaning set forth in the first paragraph.
Shares shall have the meaning set forth in Section 1.
Technology shall have the meaning set forth in the second paragraph.
Underlying Common Shares shall have the meaning set forth in Section 3(c).
9. Miscellaneous.
(a) Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
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<PAGE> 10
(b) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at
Purchaser's address hereinafter shown below Purchaser's signature or at such
other address as such party may designate by advance written notice to the other
party hereto.
(c) Governing Law. This Agreement has been negotiated, executed
and delivered in the State of California. The parties hereto agree that all
questions pertaining to the validity and interpretation of this Agreement shall
be determined in accordance with the laws of the State of California.
(d) Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon the Purchaser, Purchaser's heirs,
executors, administrators, guardians, successors and assigns.
(e) Amendments and Waivers. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all previous understandings, written or oral. This Agreement may only
be amended with the written consent of the parties hereto, or the successors or
assigns of the foregoing, and no oral waiver or amendment shall be effective
under any circumstances whatsoever.
(f) Counsel to the Company. The Purchaser acknowledges and agrees
that this Agreement has been prepared by Gray Cary Ware & Freidenrich, counsel
to the Company, which counsel has represented the interests of the Company and
not those of the Purchaser with respect to the transactions documented by this
Agreement. The Purchaser further acknowledges and agrees that the Purchaser has
been provided the opportunity and encouraged to consult with counsel of the
Purchaser's own choosing with respect to this Agreement. The Purchaser certifies
and acknowledges that the Purchaser has carefully read all of the provisions of
this Agreement and that the Purchaser fully understands and shall fully and
faithfully comply with such provisions.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
CombiChem, Inc.,
a California corporation
By: /s/ STANDISH FLEMING
----------------------------------------
Standish Fleming, President
Address: 10975 Torreyana Road
Suite 230
San Diego, California 92121
THE PURCHASER:
/s/ SYDNEY BRENNER
--------------------------------------------
Dr. Sydney Brenner
Address: 17B St. Edwards Passage
Cambridge CB2 3P5
England
[Signature Page to Series Z Preferred Stock Purchase Agreement]
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<PAGE> 12
EXHIBIT A
LIST OF TECHNOLOGY
See attached.
-9-
<PAGE> 13
EXHIBIT A
"PATENTS"
1. Sydney Brenner, "Combinatorial libraries and methods for their use,"
US Patent Application Serial No. 07/978,646, filed November 19, 1992.
2. Sydney Brenner, "Combinatorial libraries and methods for their use,"
US Patent Application Serial No. 08/168,966, filed December 15, 1993
(continuation in part of 07/978,646).
3. Sydney Brenner, "Combinatorial libraries and methods for their use,"
US Patent Application Serial No. 08/281,195, filed July 26, 1994 (continuation
in part of 08/168,966).
4. Sydney Brenner, "Multidimensional conduit combinatorial library
synthesis device," US Patent Application Serial No. 08/281,194, filed July 26,
1994.
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<PAGE> 14
EXHIBIT B
PATENT ASSIGNMENT AGREEMENT
See attached.
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<PAGE> 15
ASSIGNMENT
WHEREAS, I, SYDNEY BRENNER, hereinafter referred to as "ASSIGNOR,"
have invented certain new and useful improvements as described and set forth in
the below-identified application for United States Letters Patent:
Title of Invention: "Combinatorial libraries and methods for their
use."
Date of Execution: Filing Date: 11/19/92
Serial No.: 07/978,646.
WHEREAS, COMBICHEM, INC., hereinafter referred to as "ASSIGNEE", is
desirous of acquiring the entire right, title and interest in the said invention
and application and in any Letters Patent which may be granted on the same;
NOW, THEREFORE, TO ALL WHOM IT MAY CONCERN: Be it known that, for One
Dollar ($1.00) and other good and valuable considerations, receipt of which is
hereby acknowledged by Assignor, Assignor has sold, assigned and transferred,
and by these presents does sell, assign and transfer unto the said Assignee, and
Assignee's successors and assigns, all right, title and interest in and to the
said invention, said application for United States Letters Patent, and any
Letters Patent which may hereafter be granted on the same in the United States
and all countries throughout the world including any divisions, renewals,
continuations in whole or in part, substitutions, conversions, reissues,
prolongations or extensions thereof, said interest to be held and enjoyed by
said Assignee as fully and exclusively as it would have been held and enjoyed by
said Assignor had this assignment and transfer not been made, to the full end
and term of any such Letters Patent.
Assignor further agrees that he will, without charge to said Assignee, but
at Assignee's expense, cooperate with Assignee in the prosecution of said
application and/or applications, execute, verify, acknowledge and deliver all
such further papers, including applications for Letters Patent and for the
reissue thereof, and instruments of assignment and transfer thereof, and will
perform such other acts as Assignee lawfully may request, to obtain or maintain
Letters Patent for said invention and improvement in any and all countries, and
to vest title thereto in said Assignee, or Assignee's successors and assigns.
IN TESTIMONY WHEREOF, Assignor has hereunto signed his name to this
assignment on the date indicated below.
Dated: October 12, 1994 _____________________________________
SYDNEY BRENNER
STATE OF CALIFORNIA )
) ss
COUNTY OF SAN DIEGO )
On October 12, 1994, before me, the undersigned Notary Public,
personally appeared SYDNEY BRENNER, personally known to me or proved to me on
the basis of satisfactory evidence to be the person whose name is subscribed to
the within instrument, and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person, or
the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
[SEAL]
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<PAGE> 16
CONSENT OF SPOUSE
I, May Woolf Brenner, spouse of Dr. Sydney Brenner, have read and approve
the foregoing Series Z Stock Purchase Agreement dated October 12, 1994 (the
"Agreement"). I hereby appoint my spouse as my attorney-in-fact in respect to
the transfer or exercise of any rights under the Agreement and agree to be bound
by the provisions of the Agreement insofar as I may have any rights in said
Agreement, the Technology transferred thereto as consideration for the Shares or
in the Shares issued pursuant thereto under the community property laws of the
State of California or similar laws relating to marital property in effect in
the state of our residence as of the date of the signing of the foregoing
Agreement.
Dated: October 20, 1994
/s/ MAY WOOLF BRENNER
----------------------------------
May Woolf Brenner
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<PAGE> 1
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
PREFERRED AND COMMON
(400,000 Shares of Series A Preferred Stock
and 100,000 Shares of Common Stock)
By and Between
COMBICHEM, INC.,
a California corporation
and
SEQUOIA CAPITAL VI,
a California limited partnership
SEQUOIA TECHNOLOGY PARTNERS VI,
a California limited partnership
and SEQUOIA XXIV,
a California limited partnership
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Sale of Series A Preferred and Common Stock . . . . . . . . . . . . . . 1
2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Representations and Warranties of the Company . . . . . . . . . . . . . . 2
(a) Organization and Standing; Articles and Bylaws . . . . . . . . . . 2
(b) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Validity of the Shares . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(f) Stockholders, Directors and Officers; Indebtedness . . . . . . . . . . 3
(g) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(h) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(i) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(j) Title to Properties; Liens and Encumbrances . . . . . . . . . . . . . . 4
(k) Franchises, Licenses, Trademarks, Patents and Other Rights . . . . . . 4
(l) Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(m) Compliance With Other Instruments . . . . . . . . . . . . . . . . . . . 4
(n) Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(o) Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(p) Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Representations and Warranties of the Purchaser . . . . . . . . . . . . . . . . 5
(a) Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Reliance Upon the Purchasers' Representations . . . . . . . . . . . . . 5
(d) Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Receipt of Information . . . . . . . . . . . . . . . . . . . . . . . . 6
(f) Investment Experience . . . . . . . . . . . . . . . . . . . . . . . . . 6
(g) Limitations on Disposition . . . . . . . . . . . . . . . . . . . . . . 6
(h) Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Market Standoff Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Delivery of Financial Statements . . . . . . . . . . . . . . . . . . . 8
(b) Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Termination of Covenants . . . . . . . . . . . . . . . . . . . . . . . 8
(d) Stock Registration . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Prompt Payment of Taxes, etc . . . . . . . . . . . . . . . . . . . . . 8
(f) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(g) Key Person Life Insurance . . . . . . . . . . . . . . . . . . . . . . . 9
(h) Approval of Expenditures . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
(j) Maintenance of Corporate Existence, etc . . . . . . . . . . . . . . . . 9
(k) Election of Directors . . . . . . . . . . . . . . . . . . . . . . . 10
(l) Availability of Common Stock for Conversion . . . . . . . . . . . . . . 10
(m) Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(n) Confidentiality and Assignment Protections . . . . . . . . . . . . . . 10
7. The Purchasers' Rights to Purchase Additional Shares . . . . . . . . . . . . . . 10
8. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Further Instruments and Actions . . . . . . . . . . . . . . . . . . . . 13
(b) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(d) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . 13
(g) Counsel to the Company . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
EXHIBITS
Exhibit A Schedule of Shares Purchased by Purchasers
Exhibit B Schedule of Exceptions
Exhibit C Schedule of Current Shareholders
Exhibit D Schedule of Patent, Trademark and Copyright Rights
Exhibit E Schedule of Material Contracts
Exhibit F Confidentiality and Invention Assignment Provisions
<PAGE> 4
STOCK PURCHASE AGREEMENT
(400,000 Shares of Series A Preferred Stock
and 100,000 Shares of Common Stock)
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of November 1,
1994, by and between CombiChem, Inc., a California corporation (the "Company"),
and SEQUOIA CAPITAL VI, a California limited partnership SEQUOIA TECHNOLOGY
PARTNERS VI, a California limited partnership, and SEQUOIA XXIV, a California
limited partnership (collectively, the "Purchasers"), which term includes
successors and assigns).
WHEREAS, the Purchasers desire to make a cash payment to the Company
as consideration for obtaining a fixed number of preferred and common shares of
the Company's capital stock; and
WHEREAS, the Company desires to sell a fixed number of common and
preferred shares of the Company's capital stock to the Purchasers; and
WHEREAS, certain defined terms used in this Agreement are referenced
in Section 8 hereof.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Purchasers
hereby agree as follows:
1. Sale of Series A Preferred and Common Stock. Subject to the
terms and conditions of this Agreement, the Purchasers hereby purchase, and the
Company hereby sells to the Purchasers, an aggregate of 400,000 shares of the
Company's Series A Preferred Stock (the "Preferred Shares") and an aggregate of
100,000 shares of Common Stock (the "Common Shares") (together, the "Shares")
at prices of fifty cents ($0.50) per Series A Preferred share and five cents
($.05) per Common share, for an aggregate sum of two hundred five thousand
dollars ($205,000.00) (the "Purchase Price"), as specified in Exhibit A.
2. Closing. The purchase and sale of the Shares shall take place
at the offices of Gray, Cary, Ware & Freidenrich simultaneous with the
execution of this Agreement, or at such other place and time as the Company and
the Purchasers shall mutually agree, either orally or in writing (the
"Closing"). At the Closing, the Purchasers shall pay the Purchase Price to the
Company by check, wire transfer, cancellation of indebtedness, or such other
form of payment as shall be mutually agreed upon by the Purchasers and the
Company. At the Closing, subject to the terms and conditions hereof, the
Company shall deliver to the Purchasers certificates, registered in the name
the Purchasers designate by notice to the Company, representing the Shares
purchased by the Purchasers, dated the date of the Closing.
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<PAGE> 5
3. Representations and Warranties of the Company. Except as
specifically disclosed in this Agreement, in the schedule of exceptions
attached hereto as Exhibit B and incorporated by reference, or as otherwise
learned by the Purchaser, the Company hereby represents and warrants to the
Purchasers as follows:
(a) Organization and Standing: Articles and Bylaws. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of California, and has all requisite corporate
power and authority to own and operate its properties and assets and to carry
on its business as presently conducted. The Company is duly qualified to do
business as a foreign corporation in each jurisdiction in which the conduct of
its business requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the Company's business.
The Company has furnished the Purchasers or their special counsel with copies
of its Articles of Incorporation and its Bylaws. Said copies are true,
correct, and complete and contain all amendments through the date of the
Closing.
(b) Capitalization. The authorized capital stock of the
Company, immediately prior to the Closing, will consist of (a) 30,000,000
shares of no par value Common Stock, 1,447,500 shares of which are issued and
outstanding or committed for issuance on the date hereof, plus 100,000 of which
are being sold and issued to the Purchasers pursuant to this Agreement; and (b)
10,000,000 shares of no par value Preferred Stock, of which: (i) 1,000,000
shares have been designated Series A Preferred Stock, 600,000 shares of which
are issued and outstanding and 400,000 of which are being sold and issued to
the Purchasers pursuant to this Agreement; and (ii) 1,500,000 shares have been
designated Series Z Preferred Stock, 600,000 shares of which are issued and
outstanding or reserved for issuance on the date hereof (325,000 to 400,000
shares are reserved for issuance to The Scripps Research Institute ("Scripps")
in return for Scripps granting certain licensing rights to the Company). All
issued and outstanding shares of the Company's capital stock are represented on
Exhibit C hereto, have been duly authorized and validly issued, and are fully
paid and nonassessable.
(c) Authorization. All corporate action on the part of
the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
the Company's obligations under this Agreement and the Stock Registration
Rights Agreement, and for the authorization, issuance, sale and delivery of the
Shares and the Common Shares issuable upon conversion thereof ("Underlying
Common Shares") has been taken prior to the Closing. This Agreement, when
executed and delivered by the Company and the Purchasers, and the Stock
Registration Rights Agreement shall constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors. The execution, delivery and performance
by the Company of this Agreement and compliance herewith and the sale and
issuance of the Shares and Common Stock issuable upon conversion of the Shares
will not result in any violation of and will not conflict with, or result in a
breach of any of the terms of, or constitute a default under, any provision of
state or federal law to which the Company is subject, the Company's Articles of
Incorporation or Bylaws, each
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<PAGE> 6
as amended, or any provision of any mortgage, indenture, agreement, instrument,
judgment, decree, order, rule or regulation or other restriction to which the
Company is a party or by which it is bound, the breach of or default under
which would have a material adverse effect upon the business or operations of
the Company, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. The Shares, when issued in compliance with the
provisions of this Agreement will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances; provided, however,
that the Shares (and the Common Stock issuable upon conversion thereof) may be
subject to restrictions on transfer under state and/or federal securities laws.
The shares of Common Stock issuable upon conversion of the Shares have been
duly and validly reserved and are not subject to any preemptive rights or
rights of first refusal, and upon issuance, will be validly issued, fully paid
and nonassessable.
(d) Validity of the Shares. The Shares and the
Underlying Common Shares will be validly issued, fully paid and nonassessable.
(e) Subsidiaries. The Company has no subsidiaries and
does not own of record or beneficially any capital stock or equity interest or
investment in any corporation, association or business entity.
(f) Stockholders, Directors and Officers: Indebtedness.
The Company is not currently indebted to its officers, directors or
stockholders or any of their respective relatives, other than travel,
relocation, normal compensation and other expenses which are advanced and
reimbursed in the ordinary course of business. To the best of the Company's
knowledge, none of the officers or directors or significant employees or
consultants of the Company, has, individually or collectively, a material
interest in any entity which is a competitor, customer or supplier of (or has
any existing contractual relationship with) the Company.
(g) Disclosure. This Agreement and the Exhibits hereto
do not contain any untrue statement of a material fact and do not omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading. The Company has provided the Purchasers with all the
information which the Purchasers have requested for deciding whether to
purchase the Shares and all information which the Company believes is
reasonably necessary to enable the Purchasers to make such a decision.
(h) Litigation. There are no actions, suits, proceedings
or investigations pending, or to the Company's knowledge, claims asserted, to
which the Company is a party or its property is subject, which might result in
any material adverse change in the business or financial condition of the
Company or any of its properties or assets, or in any material impairment of
the right or ability of the Company to carry on its business as now conducted,
or in any material liability on the part of the Company, and none which
question the validity of this Agreement or any action taken or to be taken in
connection herewith.
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<PAGE> 7
(i) Consents. No consent, approval, qualification, order
or authorization of, or filing with, any governmental authority, is required in
connection with the Company's valid execution, delivery or performance of this
Agreement, or the offer, sale or issuance of the Shares by the Company, the
conversion of the Shares, the issuance of Common Stock upon conversion of the
Shares, or the consummation of any other transaction contemplated on the part
of the Company hereby, except filings required pursuant to the applicable
federal and state securities laws and blue sky laws, which filings, the Company
covenants to complete within fifteen (15) days of the Closing.
(j) Title to Properties: Liens and Encumbrances. The
Company has good and marketable title to its properties and assets and has good
title to all its leasehold interests, in each case subject to no mortgage,
pledge, lien, security interest, conditional sale agreement, encumbrance or
charge, except (i) tax, materialmen's or like liens for obligations not yet due
or payable or being contested in good faith by appropriate proceedings, or (ii)
possible minor liens or encumbrances which do not in any case materially
detract from the value of the property subject thereto or materially impair the
operations of the Company and which have not arisen otherwise then in the
ordinary course of business.
(k) Franchises, Licenses, Trademarks, Patents and Other
Rights. To the best of the Company's knowledge, it has all franchises,
permits, licenses and other similar authority necessary for the conduct of its
business, the lack of which could materially and adversely affect the
operations or condition, financial or otherwise, of the Company, and it is not
in default in any material respect under any of such franchises, permits, liens
or other similar authority. To the best of Company's knowledge, the Company
possesses certain patent, trademark, trade name and copyright rights as set
forth on Exhibit D. To the best of Company's knowledge, the Company's
intellectual property rights are sufficient to allow Company to proceed with
its business as planned and Company is not aware of any infringements of its
intellectual property rights. Reasonable security measures have been taken by
the Company to protect the secrecy, confidentiality and value of the Company's
trade secrets, confidential information, and intellectual property rights
referred to in this Section 3(k).
(l) Offering. Subject to the truth and accuracy of the
Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Shares as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Act"), and from any applicable blue sky requirements of the State of
California.
(m) Compliance With Other Instruments. The Company is
not in violation of any term of its Articles of Incorporation or Bylaws nor any
material term of any mortgage, indenture, contract, agreement, instrument,
judgment, decree, order, statute, rule or regulation to which the Company is
subject and a violation of which would have a material adverse effect on the
condition, financial or otherwise, or operations of the Company.
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<PAGE> 8
(n) Employees. To the best of the Company's knowledge
and belief, no employee of the Company is in violation of any term of any
employment contract, patent disclosure agreement, non-competition agreement, or
any restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company because of the nature of the business
conducted or presently proposed to be conducted by the Company or to the use of
trade secrets or proprietary information of others. There is neither pending
nor, to the Company's knowledge and belief, threatened any actions, suits,
proceedings or claims, or to its knowledge any basis therefor or threat thereof
with respect to any contract, agreement, covenant or obligation referred to in
the preceding sentence. The Company does not have any collective bargaining
agreement covering any of its employees.
(o) Material Contracts. A true and complete list of all
contracts, agreements and investments with respect to which the Company is
party and has an obligation in excess of Twenty Thousand Dollars ($20,000) is
set forth on Exhibit E.
(p) Board of Directors. As of the Closing, the Company's
Board of Directors will consist of Ivor Royston, Robert Curtis and Peter Bick.
4. Representations and Warranties of the Purchaser. The
Purchasers hereby represent and warrant to the Company as follows:
(a) Authorization. The Purchasers have the requisite
legal power and authority to enter into this Agreement and that this Agreement
when executed shall constitute a valid and legally binding obligation of the
Purchaser.
(b) Investment Intent. This Agreement is made with the
Purchasers in reliance upon their representation to the Company, which by their
execution hereof they confirm, that the Shares have been acquired with their
own funds for investment for an indefinite period for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that they have no present intention of selling, granting
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchasers further represent that they do not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer, or
grant participation, to such person or to any third person, with respect to any
of the Shares.
(c) Reliance Upon the Purchasers' Representations. The
Purchasers understand (i) that the Shares are not, and the Underlying Common
Shares acquired on conversion thereof at the time of issuance may not be,
registered under the Securities Act or qualified under the California Corporate
Securities Law of 1968, as amended (the "Law"), and (ii) that the Shares are
being issued to the Purchasers on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to Section 4(2) thereof and/or Regulation D
promulgated thereunder and the exemption from qualification provided by Section
25102(f) of the Law, and (iii) that the Company's reliance on
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<PAGE> 9
such exemptions is predicated on the Purchasers' representations set forth
herein. The Purchasers realize that the basis for the exemptions may not be
present if, notwithstanding such representations, the Purchasers have in mind
merely acquiring the Shares for a fixed or determinable period in the future,
or for a market rise, or for sale if the market does not rise. The Purchasers
do not have any such intention. These exemptions only exempt the issuance of
the Shares to the Purchasers and not any sale or other disposition of the
Shares or any interest therein by the Purchasers.
(d) Restricted Securities. The Purchasers hereby confirm
that they have been informed that the Shares are restricted securities under
the Securities Act and may not be resold or transferred unless the Shares are
first registered under the Federal securities laws or unless an exemption from
such registration is available. In addition, the Purchasers understand that
any resale or transfer must comply with applicable state securities laws.
Accordingly, the Purchasers hereby acknowledge that they are prepared to hold
the Shares for an indefinite period, and that the Purchasers are familiar with
the provisions of Rule 144 of the Securities and Exchange Commission issued
under the Securities Act, and are aware that Rule 144 is not presently
available to exempt the sale of the Shares from the registration requirements
of the Securities Act.
(e) Receipt of Information. The Purchasers acknowledge
that they have received all the information they consider necessary or
appropriate for deciding whether to purchase the Shares. The Purchasers
further represent that they have had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Shares and the business, properties, prospects, and financial
condition of the Company, and to obtain additional information (to the extent
the Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy or any information
furnished to them or to which they had access.
(f) Investment Experience. In connection with the
investment representations made herein, the Purchasers represent that each of
them; is an "accredited investor" as defined in Section 501 of Regulation D,
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment, has the ability
to bear the economic risks of its investment and has been furnished with and
has had access to all of the information it considers necessary or appropriate
to evaluate the risks and merits of an investment in the Shares, and has had an
opportunity to discuss the Company's business, management and financial affairs
with the Company's management.
(g) Limitations on Disposition. The Purchasers agree
that in no event will they make a disposition of any of the Shares, unless and
until (a) they shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (b) they shall have furnished the
Company with an opinion of counsel satisfactory to the Company to the effect
that (i) such disposition will not require registration of such Shares under
the Securities Act, or (ii) that appropriate action necessary for compliance
with the Securities Act has been taken, or (c) the
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<PAGE> 10
Company shall have waived, expressly and in writing, its rights under clauses
(a) and (b) of this subparagraph. The opinion shall also indicate that the
disposition is exempt from, in compliance with, or qualified under all
applicable state securities laws.
(h) Legends. All certificates representing any shares of
Shares of the Company subject to the provisions of this Agreement shall have
endorsed thereon customary legends regarding:
(1) Restrictions on transfer under the Federal
Securities Act of 1933.
(2) Market Stand-Off Agreements pursuant to
Section 5 hereof.
(3) Any legend required by state securities laws.
5. Market Stand-off Agreement.
(a) In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, including the Company's initial
public offering, the Purchasers shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to the Shares without the prior written consent of
the Company or its underwriters. Such limitations shall be in effect for one
hundred eighty (180) days from and after the effective date of such
registration statement or such longer time as may be required by the Company's
underwriters. The limitations of this Section 5 shall remain in effect for the
two-year period immediately following the effective date of the Company's
initial public offering and shall thereafter terminate and cease to have any
force or effect.
(b) In the event any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding common
shares is effected without receipt of consideration, then any new, substituted
or additional securities distributed with respect to the Shares shall be
immediately subject to the provisions of this Section 5 to the same extent the
Shares are at such time covered by such provisions.
(c) In order to enforce the limitations of this Section
5, the Company may impose stop-transfer instructions with respect to the Shares
until the end of the applicable stand-off period.
(d) The obligations in this Section 5 shall not apply to
a registration relating solely to employee benefit plan shares or to a Rule 145
transaction registered on Form S-4.
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<PAGE> 11
6. Covenants of the Company.
(a) Delivery of Financial Statements. The Company shall deliver to
the Purchasers:
(1) as soon as practicable after the end of each
fiscal year of the Company, audited financial statements for such fiscal year,
prepared in accordance with generally accepted accounting principles ("GAAP")
together with an annual report of the Company, all in reasonable detail and
certified by an independent public accountant of recognized national standing
selected by the Company;
(2) as soon as practicable after the end of each
month of each fiscal year of the Company, unaudited financial statements for
such month, prepared in accordance with generally accepted accounting
principles consistently applied, subject to changes resulting from year-end
audit adjustments and the absence of notes, all in reasonable detail and
certified by the principal financial or accounting officer of the Company;
(3) such other information relating to the
financial condition, business, prospects or corporate affairs of the Company
as the Purchasers or any assignee of the Purchasers may from time to time
reasonably request, provided, however, that the Company shall not be obligated
under provision of this Agreement to provide information which it deems in good
faith to be a trade secret or similar confidential information.
(b) Inspection. The Company shall permit the Purchasers,
at their expense, to visit and inspect the Company's properties, to examine its
books of account and records, and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be
requested by the Purchaser; provided, however, that the Company shall not be
obligated pursuant to this section to provide access to any information which
it reasonably considers to be a trade secret or similar confidential
information.
(c) Termination of Covenants. The covenants set forth in
this Section 6 shall terminate and be of no further force or effect upon the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Securities Act in connection with the firm
commitment underwritten offering of its securities to the general public where
the gross proceeds to the Company are at least five million dollars
($5,000,000).
(d) Stock Registration. Simultaneous with entering into
this Agreement, the Company and the Purchasers are also entering into a Stock
Registration Rights Agreement which grants certain rights to the Purchasers to
have the Common Shares and the shares of common stock issuable upon conversion
of the Preferred Shares registered.
(e) Prompt Payment of Taxes, etc. The Company will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes,
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<PAGE> 12
assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor.
(f) Insurance. The Company will keep its assets and
those of its subsidiaries which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in the
Company's line of business, in amounts sufficient to allow it to replace any of
its properties which might be damaged or destroyed. The Company will maintain
with financially sound and reputable insurers, insurance against other hazards
and risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated.
(g) Key Person Life Insurance. The Company shall use
reasonable efforts to obtain and maintain with financially sound and reputable
insurers, an annually renewable key person term life insurance policy in the
amount of $1,000,000 on the life of its chief executive officer. Such policy
shall name the company as loss payee and shall be maintained by the Company
with financially sound and reputable insurers. The Board of Directors shall
decide whether to renew this policy on an annual basis, in its sole discretion.
(h) Approval of Expenditures. Until the Company obtains
an aggregate,cash investment of three million dollars ($3,000,000) in the
Company's capital stock, (i) the Company shall submit each year's proposed
annual budget to the Company's Board of Directors prior to year-end and such
budget must be approved by not less than seventy-five percent (75%) of the
Company's Board of Directors; (ii) the Company shall not make any expenditure
in excess of $50,000 (which is not provided for in the Company's approved
annual budget) unless such expenditure is approved by an affirmative vote of
not less than seventy-five percent (75%) of the Company's Board of Directors;
and (iii) the Company shall not liquidate or otherwise dispose of any assets
with a value in excess of $50,000 without an affirmative vote of not less than
seventy-five percent (75%) of the Company's Board of Directors.
(i) Accounts and Records. The Company will keep true
records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a
consistent basis.
(j) Maintenance of Corporate Existence, etc. The Company
shall maintain in full force and effect its corporate existence, rights and
franchises and all licenses and other rights to use patents, processes,
licenses, trademarks, trade names or copyrights owned or possessed by it or any
subsidiary and deemed by the Company to be material to the conduct of their
business.
-9-
<PAGE> 13
(k) Election of Directors. Effective upon the closing
date of this Agreement, the Company shall cause Peter Bick to be appointed to
the Company's Board of Directors. So long as the Purchasers own not less than
a combined total of the greater of (i) 300,000 shares or (ii) 25% of the
Company's Preferred Stock (including shares of Common Stock issued upon
conversion of the Preferred Stock and as adjusted for stock splits, etc.), the
Purchasers shall have the right to nominate for election to the Company's Board
of Directors (the "Board") one member of the Board (the "Preferred Director").
The name of the person(s) so nominated shall be subject to approval by the
Company, which approval shall not be unreasonably withheld. The parties hereto
agree that the initial Preferred Director shall be Peter Bick. The Company
agrees to take all actions necessary or appropriate to present the Preferred
Director to the shareholders for election and approval as a director. Robert
Curtis and Forward Ventures II, L.P. agree to take all action necessary to
elect the Preferred Director to the Board of Directors of the Company and each
of them agrees to vote such shareholder's shares in favor of election of the
Preferred Director. If a Preferred Director resigns or is removed by a vote of
the Company's shareholders, or if his or her Board seat is otherwise vacated
for any reason, then the Purchasers shall have the right to nominate his or her
replacement, subject to the Company's approval, which approval shall not be
unreasonably withheld, and Robert Curtis and Forward Ventures II, L.P. agree to
vote each of such shareholder's shares for the election of such replacement
Preferred Director. The provisions of this Section 6(k) shall be construed to
constitute the granting of proxies coupled with an interest.
(l) Availability of Common Stock for Conversion. The
Company will from time to time, in accordance with the laws of the State of
California, increase the authorized amount of Common Stock if at any time the
number of shares of Common Stock remaining unissued and available for issuance
shall be insufficient to permit conversion of all the then outstanding shares
of Series A Preferred Stock.
(m) Stock Option Plan. The Company hereby agrees not to
issue, sell or otherwise transfer in excess of one million three hundred
thousand (1,300,000) shares of the Company's Common Stock to employees,
directors, officers or consultants of the Company pursuant to any stock option
plan or other arrangement approved by the Board of Directors; provided,
however, that this one million three hundred thousand (1,300,000) share
limitation shall not include any shares of Common Stock issued prior to the
date hereof
(n) Confidentiality and Assignment Protections. The
Company and each person now or hereafter employed in any technical capacity by
it or any subsidiary with access to confidential information will enter into an
agreement that contains the following confidential information and assignment
provisions substantially in the form of Exhibit F hereto.
7. The Purchasers' Rights to Purchase Additional Shares.
(a) Subject to the terms and conditions specified in this
Section 7, the Company hereby grants to the Purchasers a right to purchase a
pro rata share of New Securities (as
-10-
<PAGE> 14
hereinafter defined) equal to the ratio of (i) the aggregate number of shares
of the Company's Common Stock owned by the Purchasers immediately prior to the
issuance of New Securities (assuming full conversion of all owned convertible
securities into shares of Common Stock of), and (ii) to the total number of
shares of Common Stock outstanding on a fully diluted basis immediately prior
to the issuance of New Securities (the "Pro Rata Share"). For purposes of this
Section 7, Purchasers include any general partners and affiliates of a
Purchaser. Purchasers shall be entitled to apportion the right to purchase
additional Shares hereby granted them among themselves and their partners and
affiliates in such proportions as they deem appropriate.
Not later than thirty calendar days after the Company sells
any shares solely for cash (excluding however securities described in Section
7(e) hereof), including any common shares, preferred shares, or securities
convertible into any shares ("New Securities"), the Company shall make an
offering of some of the New Securities to the Purchasers in accordance with the
following provisions:
(b) The Company shall deliver a notice by certified mail
("Notice") to the Purchasers stating (i) the number of New Securities sold and
available for sale, (ii) the number of such New Securities the Purchasers are
entitled to purchase, as the Purchasers' Pro Rata Shares, and (iii) the price
and terms upon which the New Securities were sold or are to be sold.
(c) Within 20 calendar days after the Company provides
such Notice, each Purchaser may elect to purchase or obtain, at the price and
on the terms specified in the Notice, up to the Purchasers' Pro Rata Share of
the New Securities.
(d) If any party elects not to obtain its Pro Rata Share
of the New Securities, the Company may, during the 90-day period following the
expiration of the period provided in subsection 7(c) hereof, assign the right
to purchase the remaining unsubscribed portion of such New Securities to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Notice without offering any of such
unsubscribed New Securities to the Purchaser. If the Company does not enter
into an agreement for the sale of the New Securities within such period, or if
such agreement is not consummated within such 90-day period, the Company's
right to assign the right to purchase the New Securities provided hereunder
shall be deemed to be revoked and such New Securities shall not be offered to
any third party unless first re-offered to the Purchasers in accordance
herewith.
(e) Notwithstanding any other provision to the contrary, the
right to purchase New Securities contained in this Section 7 shall not be
applicable (i) to the issuance or sale of up to 1,300,000 shares of the
Company's Common Stock (or related options) issued to employees, directors,
officers or consultants of the Company pursuant to any stock option plan or
other arrangement approved by the Board of Directors which number may be
increased by the approval of not less than seventy-five percent (75%) of the
Board of Directors, provided, however, that only a majority approval of the
Company's Board of Directors shall be required after the Company has obtained
an aggregate cash investment of Three Million Dollars
-11-
<PAGE> 15
($3,000,000) in its capital stock; (ii) to or after the consummation of a bona
fide, firmly underwritten public offering of shares of common stock, registered
under the Securities Act pursuant to a registration statement; (iii) the
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities; (iv) the issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of shares or otherwise; (v) to
securities issued in connection with obtaining real estate lease financing,
whether issued to a lessor, guarantor or other person; (vi) to securities
issued in connection with any borrowings, direct or indirect, from financial
institutions by the Company, including without limitation, equipment lease
financing arrangements approved by the Board of Directors; (vii) to securities
issued pursuant to the acquisition of license or other rights, assets or
technology with third parties or in connection with corporate partnering
arrangements with third parties, provided that such arrangements are approved
by not less than seventy-five percent (75%) of the Company's Board of
Directors; and (viii) to securities issued in connection with any stock split,
stock dividend or recapitalization of the Company.
(f) The right to purchase New Securities set forth in
this Section 7 may not be assigned or transferred except that (i) such right is
assignable by the Purchasers to any wholly owned subsidiary or parent of, or to
any corporation or entity that is, within the meaning of the Act, controlling,
controlled by or under common control with, any such Purchaser, and (ii) such
right is assignable between and among any of the Purchasers of the Company's
preferred stock.
8. Defined Terms. When used herein the following defined terms
shall have the respective definitions as set forth below:
Accredited Investor shall have the meaning set forth in Section 4(f).
Agreement shall have the meaning set forth in the first paragraph.
Closing shall have the meaning set forth in Section 2.
Company shall have the meaning set forth in first paragraph.
GAAP shall have the meaning set forth in Section 6(a)(1).
Law shall have the meaning set forth in Section 4(c).
New Securities shall have the meaning set forth in Section 7(a).
Notice shall have the meaning set forth in Section 7(b).
Pro Rata Shares shall have the meaning set forth in Section 7(a).
Purchase Price shall have the meaning set forth in Section 1.
-12-
<PAGE> 16
Purchasers shall have the meaning set forth in the first paragraph.
Shares shall have the meaning set forth in Section 1.
Underlying Common Shares shall have the meaning set forth in Section
3(c).
9. Miscellaneous.
(a) Further Instruments and Actions. The parties agree
to execute such further instruments and to take such further action as may
reasonably be necessary to carry out the intent of this Agreement.
(b) Notices. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail with postage and fees prepaid, addressed to the other party
hereto at its address hereinafter shown below its signature or at such other
address as such party may designate by advance written notice to the other
party hereto.
(c) Expenses. The Company and the Purchasers shall bear
their own expenses and legal fees incurred with respect to this Agreement and
the transactions contemplated hereby; provided, however, that the Company will
pay the reasonable legal fees and out-of-pocket expenses of Wilson, Sonsini,
Goodrich & Rosati, special counsel to the Purchasers, in an amount not to
exceed $6,000.
(d) Governing Law. This Agreement has been negotiated,
executed and delivered in the State of California. The parties hereto agree
that all questions pertaining to the validity and interpretation of this
Agreement shall be determined in accordance with the laws of the State of
California.
(e) Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of the successors and assigns of the Company and, subject to the restrictions
on transfer herein set forth, be binding upon the Purchaser, its successors and
assigns.
(f) Amendments and Waivers. This Agreement represents
the entire understanding of the parties with respect to the subject matter
hereof and supersedes all previous understandings, written or oral. This
Agreement may only be amended with the written consent of the parties hereto,
or the successors or assigns of the foregoing, and no oral waiver or amendment
shall be effective under any circumstances whatsoever.
(g) Counsel to the Company. The Purchasers acknowledge
and agree that this Agreement has been prepared by Gray Cary Ware &
Freidenrich, counsel to the Company, which counsel has represented the
interests of the Company and not those of the Purchasers with respect
-13-
<PAGE> 17
to the transactions documented by this Agreement. The Purchasers further
acknowledge and agree that the Purchasers have been provided the opportunity
and encouraged to consult with counsel of the Purchasers' own choosing with
respect to this Agreement. The Purchasers certify and acknowledge that the
Purchasers have carefully read all of the provisions of this Agreement and that
the Purchasers fully understand and shall fully and faithfully comply with such
provisions.
-14-
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
COMBICHEM, INC., Address:
a California corporation 10975 Torreyana Road, Suite 230
San Diego, California 92121
By: /s/ Robert A. Curtis
----------------------------------------
Robert A. Curtis, Chief Executive Officer
PURCHASERS:
By: /s/ Peter S. Bick
----------------------------------------
Peter Bick
----------------------------------------
In the Capacity indicated for each
of the following entities:
SEQUOIA CAPITAL VI, Address:
a California Limited Partnership 3000 Sand Hill Road
a General Partner Building 4, Suite 280
Menlo Park, California 94025
SEQUOIA TECHNOLOGY PARTNERS VI, Address:
a California Limited Partnership 3000 Sand Hill Road
a General Partner Building 4, Suite 280
Menlo Park, California 94025
SEQUOIA XXIV Address:
a California Limited Partnership 3000 Sand Hill Road
a General Partner Building 4, Suite 280
Menlo Park, California 94025
[Signature Page to Sequoia Stock Purchase Agreement]
<PAGE> 19
EXHIBIT A
SCHEDULE OF SHARES PURCHASED BY PURCHASER
<TABLE>
<CAPTION>
Number of Shares Number of Shares
Purchaser of Preferred of Common
- --------- ------------ ---------
<S> <C> <C>
SEQUOIA CAPITAL VI 364,000 91,000
SEQUOIA TECHNOLOGY
PARTNERS VI 20,000 5,000
SEQUOIA XXIV 16,000 4,000
------- ------
Total Shares 400,000 100,000
</TABLE>
<PAGE> 20
EXHIBIT B
SCHEDULE OF EXCEPTIONS
1. Employees (Section 3(f))
Robert Curtis owns stock in and is a former officer of Pharmacopeia
which is a competitor of the Company.
2. Litigation (Section (3h))
Affymax and Company have independent patent rights which may be
blocking. Affymax currently utilizes the name CombiChem in its presentations.
3. Intellectual Property (Section 3(k))
The Company is a start up entity which is in the process of negotiating with The
Scripps Research Institute and Johnson and Johnson to secure licensing rights to
certain patents and other intellectual property which may be important to the
operation of the Company's current and future business. The Company is not
aware of any competing intellectual property rights held by third parties which
adversely affect the Company's right to utilize its intellectual property or the
conduct of the Company's current or future business endeavors.
<PAGE> 21
EXHIBIT C
SCHEDULE OF STOCK HOLDERS
(Common and Preferred)
<PAGE> 22
COMBICHEM, INC.
COMMON STOCK LEDGER
<TABLE>
<CAPTION>
Cert # No. of Shares Shareholder Date issued
<S> <C> <C> <C>
======================================================================================================
1 175,000 KIM D. JANDA September 28th, 1994
- ------------------------------------------------------------------------------------------------------
2 150,000 CHI-HUEY WONG September 28th, 1994
- ------------------------------------------------------------------------------------------------------
3 150,000 DALE L. BOGER September 28th, 1994
- ------------------------------------------------------------------------------------------------------
4 10,000 ERIC ERB September 28th, 1994
- ------------------------------------------------------------------------------------------------------
5 37,500 STANDISH FLEMING September 28th, 1994
- ------------------------------------------------------------------------------------------------------
6 37,500 ROYSTON FAMILY TRUST September 28th, 1994
- ------------------------------------------------------------------------------------------------------
7 150,000 SYDNEY BRENNER September 28th, 1994
- ------------------------------------------------------------------------------------------------------
8 225,000 FORWARD VENTURES II, L.P. September 28th, 1994
- ------------------------------------------------------------------------------------------------------
9 10,000 JEFFREY SOLLENDER September 28th, 1994
- ------------------------------------------------------------------------------------------------------
10 500,000 ROBERT CURTIS September 28th, 1994
- ------------------------------------------------------------------------------------------------------
11 2,500 GAIL ERWIN October 18, 1994
- ------------------------------------------------------------------------------------------------------
TOTAL 1,447,500 October 28, 1994
======================================================================================================
</TABLE>
PREFERRED STOCK LEDGER
<TABLE>
<CAPTION>
======================================================================================================
Cert # No. of Shareholder Date issued
Shares
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PA1 600,000 FORWARD VENTURES II, L.P. August 26th, 1994
- ------------------------------------------------------------------------------------------------------
PZ1 200,000 SYDNEY BRENNER October 12th, 1994
- ------------------------------------------------------------------------------------------------------
TOTAL 800,000
======================================================================================================
</TABLE>
<PAGE> 23
EXHIBIT D
SCHEDULE OF PATENT, TRADEMARK AND COPYRIGHT RIGHTS
1. PATENTS
(a) The Company has been assigned rights to the following patents:
(1) Sydney Brenner, "Combinatorial libraries and methods
for their use," US Patent Application Serial No. 07/978,646, filed November
19,1992.
(2) Sydney Brenner, "Combinatorial libraries and methods
for their use," US Patent Application Serial No. 08/168,966, filed December 15,
1993 (continuation in part of 07/978,646).
(3) Sydney Brenner, "Combinatorial libraries and methods
for their use," US Patent Application Serial No. 08/281,195, filed July 26,
1994 (continuation in part of 08/168,966).
(4) Sydney Brenner, "Multidimensional conduit
combinatorial library synthesis device," US Patent Application Serial No.
08/281,194, filed July 26, 1994.
(b) The Company is in the process of negotiating licenses to use the
following patents from The Scripps Research Institute and Johnson and Johnson:
See attached TSRI Technology License Letter of Understanding
Known Issues
Affymax Corporation's Patent Application (International Application
No. PCT/US92/07815) may prove to be blocking on the Brenner/Lemer/Janda Patent
Applications (U.S. Serial No. 07/860,445 or International Application No. PCT
US93/20243).
The Company does not have a licensing agreement with Johnson & Johnson
and does not have a definitive written agreement with Scripps Research
Institute beyond the Letter of Understanding.
2. TRADEMARKS
The Company has been assigned the following intent to use trademark
applications:
COMBICHEM Serial No. 74/363,514
COMBICHEM Serial No. 74/363,515
<PAGE> 24
Known Issues
Affymax Corporation has attempted to register the CombiChem trademark
in the United States and such attempt was rejected. To the Company's knowledge,
Affymax has not registered the CombiChem trademark in Europe. The Company has
not registered the CombiChem trademark outside of the United States.
3. COPYRIGHTS
The Company does not possess any registered copyrights.
<PAGE> 25
EXHIBIT E
SCHEDULE OF MATERIAL CONTRACTS
1. Asset Purchase Agreement with CombiChem, Inc., a Delaware corporation
2. Promissory Note to CombiChem, Inc., a Delaware corporation
3. Series A Stock Purchase Agreement with Forward Ventures II, LP.
4. Series Z Stock Purchase Agreement with Dr. Sydney Brenner
5. Series Z Stock Registration Rights
6. Employment Agreements with Robert Curtis, Eric Erb and Jeffrey
Sollender
7. Consulting Agreements w/ Brenner, Boger, Janda and Wong
8. Termination Agreement dated October 20, 1994 with David Palella dba
BioScience Ventures; Company currently owes Mr. Palella $25,000
9. Sublease of Research Space from Science Applications International
Corporation
l0. $175,000 Purchase Order for NMR Equipment
ll. $25,000 Purchase Order for Ionized Water Purifier
12. The Scripps Research Institute Licensing Letter of Understanding
13. Comdisco Equipment Lease Letter of Understanding
<PAGE> 26
EXHIBIT F
CONFIDENTIALITY AND INVENTION ASSIGNMENT PROVISIONS
See attached.
<PAGE> 27
I Inventions, Trade Secrets and Confidentiality.
A. Definitions.
1. Invention Defined. As used herein
"Invention" means Inventions, discoveries, concepts, and ideas, whether
patentable or copyrightable or not, including but not limited to processes,
methods, formulas, techniques, devices, designs, programs (including computer
programs), computer graphics, apparatus, products, as well as improvements
thereof or know-how related thereto, relating to any present or anticipated
business or activities of Employer.
2. Trade Secret Defined. As used herein "Trade
Secret" means, without limitation, any document or information relating to
Employer's products, processes or services, including documents and information
relating to Inventions, and to the research, development, engineering or
manufacture of Inventions, and to Employer's purchasing, customer or supplier
lists and pricing policies, which documents or information have been disclosed
to Employee or known to Employee as a consequence of or through Employee's
employment by Employer (including documents, information or Inventions
conceived, originated, discovered or developed by Employee), which is not
generally known in the relevant trade or industry.
3. Protected Information. As used in this
Agreement, the term "Protected Information" shall mean, without limitation, all
trade secrets, confidential or proprietary information, and all other
knowledge, data, know-how, processes, information, documents or materials,
owned, developed or possessed by Employer, whether in tangible or intangible
form, the confidentiality of which Employer takes reasonable measures to
protect, and which pertains in any manner to subjects which include, but are
not limited to, Employer's research operations, customers (including identifies
of customers and prospective customers, identities of individual contacts at
business entities which are customers or prospective customers, preferences,
businesses or habits), business relationships, engineering data or results,
specifications, concepts, methods, processes, rates or schedules, customer or
vendor information, products (including prices, costs, sales or content),
financial information or measures, business methods, future business plans,
data bases, computer programs, designs, models, operating procedures, and
knowledge of the organization.
B. Inventions.
1. Disclosure of Prior Inventions. Employee hereby
warrants and represents that Employee has identified and described on Exhibit
A, attached hereto and incorporated by reference, all Inventions, innovations,
improvements, discoveries and patents made, conceived or acquired by Employee
prior to the Period of Employment in which Employee has any interest whatsoever
(the "Prior Inventions") and that as of the date this Agreement is executed,
Exhibit A contains a complete list of all Prior Inventions. Employee
represents that Employee has no rights in any Inventions other than those Prior
Inventions specified in Exhibit A. If there are no Prior Inventions listed on
Exhibit A, Employee represents that Employee has not made any Prior Inventions
prior to the execution of this Agreement.
<PAGE> 28
2. Disclosure. Employee shall disclose promptly to
Employer each Invention, whether or not reduced to practice, which is conceived
or learned by Employee (either alone or jointly with others) during the term of
his employment with Employer. Employee shall disclose in confidence to
Employer all patent applications filed by or on behalf of Employee during the
term of his employment and for a period of one year thereafter.
3. Employer Property; Assignment. Employee acknowledges
and agrees that all Inventions which are discovered, conceived, developed,
made, produced or prepared by Employee (alone or in conjunction with others)
during the duration of Employee's employment with Employer shall be the sole
property of Employer. Said property rights of Employer include without
limitation all domestic and foreign patent rights, rights of registration or
other protection under the patent and copyright laws, and all other rights
pertaining to the Inventions. Employee further agrees that all services,
products and Inventions that directly or indirectly result from engagement with
Company shall be deemed "works for hire" as that term is defined in Title 17 of
the United States Codes and accordingly all rights associated therewith shall
vest in the Company. Notwithstanding the foregoing, Employee hereby assigns to
Employer all of Employee's right, title and interest in any such services,
products and Inventions, in the event any such services, products and
Inventions shall be determined not to constitute "works for hire."
4. Exclusion Notice. The assignment by Employee of
Inventions under this Agreement does not apply to any Inventions which are
owned or controlled by Employee prior to the commencement of employment of
Employee by Employer (all of which are set forth on Exhibit A). Additionally,
Employee is not required to assign an idea or invention where the invention or
idea meets all of the following criteria, namely in the invention or idea: (i)
was created or conceived without the use of any of Employer's equipment,
supplies, facilities, or trade secret information, and (ii) was developed
entirely on Employee's own time, and (iii) does not relate to the business of
Employer, and (iv) does not relate to Employer's actual or demonstrably
anticipated research or development, and (v) does not result from any work
performed by Employee for Employer. Employee has reviewed the notification in
this Section 6.2.4 and in Exhibit B (the "Limited Exclusion Notification"),
attached hereto and incorporated by reference, and agrees that Employee's
signature on the Limited Exclusion Notification acknowledges receipt of the
notification.
5. Inventions Within One Year of Separation Presumed to
Belong to Employer. All inventions improvements, concepts or discoveries
claimed to have been made or conceived by Employee during the first year
following the termination of the Period of Employment and related in any way to
Employer's business, work or investigations shall be presumed to have been made
or conceived during the Period of Employment and shall be subject to the
provisions of this Agreement unless Employee can conclusively establish the
contrary to the Employer or a court of competent jurisdiction.
<PAGE> 29
6. Disclosure and Prior Review.of Articles. Employee
agrees that, while an employee of Employer and for three years following the
termination, for any reason, of Employee's employment with Employer, at least
fifteen days prior to submission for publication of any article or contribution
from or by Employee, which article or contribution deals with or makes
reference to the Employer's field of endeavors, any Inventions, any Protected
Information or any other subject pertaining to Employer, Employee shall deliver
a copy of such article or publication to Employer and shall request Employer's
permission to publish such articles which consent shall not be unreasonably
withheld.
7. Patents and Copyrights; Attorney-in-Fact. Both
before and after termination of this Agreement (and with reasonable
compensation paid by Employer to Employee after termination), Employee agrees
to assist the Employer to apply for, obtain and enforce patents on, and to
apply for, obtain and enforce copyright protection and registration of, the
Inventions described in Section 6.2.2 in any and all countries. To that end,
Employee shall (at Employer's request) without limitation, testify in any
proceeding, and execute any documents and assignments determined to be
necessary or convenient for use in applying for, obtaining, registering and
enforcing patent or copyright protection involving any of the Inventions.
Employee hereby irrevocably appoints Employer, and its duly authorized officers
and agents, as Employee's agent and attorney-in-fact to act for and in behalf
of Employee in filing all patent applications, applications for copyright
protection and registration, amendments, renewals, and all other appropriate
documents in any way related to the Inventions described in Section 6.2.3. The
decision to file (or not to file) a patent application or applications on any
Inventions shall be in the Company's sole discretion.
C. Trade Secrets.
1. Ownership of Trade Secrets and Protected Information.
All Trade Secrets and Protected Information, and any Derivatives thereof
whether created by Employer or Employee, alone or in conjunction with others,
shall be and remain the property of Employer and no license or other rights to
the Trade Secrets or Protected Information is granted or implied hereby. For
purposes of this Agreement, "Derivatives" shall mean: (i) for copyrightable or
copyrighted material, any translation, abridgement, revision or other form in
which an existing work may be recast, transformed or adapted; (ii) for
patentable or patented material, any improvement thereon; and (iii) for
material which is protected by trade secret, any new material derived from such
existing trade secret material, including new material which may be protected
by copyright, patent and/or trade secret. All materials (including without
limitation, documents, drawings, models, apparatus, sketches, designs and
lists) furnished to Employee shall remain the property of Employer and shall be
returned to it promptly at its request, together with any copies thereof.
2. Covenant Not to Divulge Trade Secrets. Employee
acknowledges and agrees that Employer is entitled to prevent the disclosure of
Employer's Trade Secrets or Protected Information. As a portion of the
consideration for the employment of Employee and for the compensation being
paid to Employee by Employer, Employee agrees at all times during the term of
the employment by Employer and thereafter to hold in strictest confidence, and
not to use, disclose or allow to be disclosed to any person, firm, or
corporation, Employer's Trade
<PAGE> 30
Secrets or Protected Information, including Trade Secrets developed by
Employee, other than disclosures to persons who have entered into
confidentiality agreements with Employer without Employer's express prior
written consent.
3. Term. This Agreement shall govern all communications
between the parties that are made during the period from the effective date of
this Agreement to the date on which either party receives from the other
written notice that the Agreement is being terminated, provided, however, that
the obligations set forth in Section 6 shall continue for a period of five
years after the termination of this Agreement.
D. No Adverse Use. Employee will not at any time during the
Period of Employment or thereafter use Employer's Trade Secrets, Protected
Information or Inventions in any manner which may directly or indirectly have
an adverse effect upon Employer's business, nor will Employee perform any acts
which would tend to reduce Employer's proprietary value in Employer's Trade
Secrets, Protected Information or Inventions.
II Covenant Not to Compete. Employee agrees that, during
Employee's employment, Employee will not directly or indirectly compete with
Employer in any way, and that Employee will not act as an officer, director,
employee, consultant, shareholder, lender, or agent of any other entity which
is engaged in any business of the same nature as, or in competition with, the
business in which Employer is now engaged or in which Employer becomes engaged
during the term of Employee's employment, or which is involved in science or
technology which is similar to Employer's science or technology. During
Employee's employment, and for a period of one (1) year thereafter, Employee
shall not directly or indirectly through another entity (i) induce or attempt
to induce any employee of Employer or any subsidiary of Employer to leave the
employ of Employer or such subsidiary, or in any way interfere with the
relationship between the Employer or any subsidiary and the employee thereof;
(ii) hire any person who was an employee of Employer or any subsidiary at any
time; or (iii) induce or attempt to induce any customer, supplier, licensee,
licensor or other party which has a contractual relationship with Employer or
its subsidiaries or affiliates to cease doing business with Employer or any
such subsidiary (including, without limitation, making any negative statements
or communications about Employer or its affiliates).
<PAGE> 31
III Employee's Representations. Employee represents and warrants
that Employee (i) is free to enter into this Agreement and to perform each of
the terms and covenants contained herein, (ii) is not restricted or prohibited,
contractually or otherwise, from entering into and performing this Agreement,
and (iii) will not be in violation or breach of any other agreement by reason
of Employee's execution and performance of this Agreement and Employee has
identified any exceptions on Exhibit C ("Possible Violations of Third Party
Rights") attached hereto and incorporated by reference.
<PAGE> 32
EXHIBIT A
PRIOR INVENTIONS
_________ Yes, I claim an ownership interest in the following Inventions.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
_________ No, I do not claim an ownership interest in any Inventions.
By:___________________________________
Dated:________________________________
Witnessed by:
____________________________________
____________________________________
(Printed Name of Representative)
Dated:______________________________
<PAGE> 33
EXHIBIT B
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the
California Labor Code that the foregoing Agreement between you and the Company
does not require you to assign or offer to assign to the Company any invention
that you developed entirely on your own time without using the Company's
equipment, supplies, facilities or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company.
(2) Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to
require you to assign an invention otherwise excluded from the preceding
paragraph, the provision is against the public policy of this state and is
unenforceable.
This limited exclusion does not apply to any patent or invention
covered by a contract between the Company and the United States or any of its
agencies requiring full title to such patent or invention to be in the United
States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By:___________________________________
Dated:________________________________
Witnessed by:
____________________________________
____________________________________
(Printed Name of Representative)
Dated:______________________________
<PAGE> 34
EXHIBIT C
POSSIBLE VIOLATIONS OF THIRD PARTY AGREEMENTS OR
THIRD PARTY INTELLECTUAL PROPERTY RIGHTS
_________ I am aware of the following potential violations of former
consulting, employment or other third party agreements, or
infringements upon the intellectual property rights of third
parties which could occur due to my contemplated activities
and duties pursuant to that certain Consulting Agreement of
even date herewith or that have occurred due to any of my
previous activities performed on behalf of the Company.
Describe in detail any potential violations or infringements:
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
_________ I am unaware of any potential violations of former consulting,
employment or other third party agreements, or of any
infringements upon the intellectual property rights of third
parties which could occur due to my contemplated activities
and duties pursuant to that certain Employment Agreement of
even date herewith or that have occurred due to any of my
previous activities performed on behalf of the Company.
By:___________________________________
Dated:________________________________
Witnessed by:
____________________________________
____________________________________
(Printed Name of Representative)
Dated:______________________________
<PAGE> 1
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
SERIES B PREFERRED
By and Between
COMBICHEM, INC.,
a California corporation
and
SEQUOIA CAPITAL VI,
a California limited partnership
SEQUOIA TECHNOLOGY PARTNERS VI,
a California limited partnership
SEQUOIA XXIV,
a California limited partnership
FORWARD VENTURES II, L.P.,
a Delaware limited partnership
November 29, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Sale of Series B Preferred Stock . . . . . . . . . . . . . . . . . . . . . . 1
2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Representations and Warranties of the Company . . . . . . . . . . . . . . . 2
(a) Organization and Standing; Articles and Bylaws . . . . . . . . . . . 2
(b) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Validity of the Shares . . . . . . . . . . . . . . . . . . . . . . . 3
(e) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(f) Stockholders, Directors and Officers; Indebtedness . . . . . . . . . 3
(g) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(i) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(j) Title to Properties; Liens and Encumbrances . . . . . . . . . . . . 3
(k) Franchises, Licenses, Trademarks, Patents and Other Rights . . . . . 4
(1) Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(m) Compliance With Other Instruments . . . . . . . . . . . . . . . . . 4
(n) Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(o) Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 5
(p) Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 5
(q) Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Representations and Warranties of the Purchaser . . . . . . . . . . . . . . 5
(a) Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Reliance Upon the Purchasers Representations . . . . . . . . . . . . 5
(d) Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Receipt of Information . . . . . . . . . . . . . . . . . . . . . . . 6
(f) Investment Experience . . . . . . . . . . . . . . . . . . . . . . . 6
(g) Limitations on Disposition . . . . . . . . . . . . . . . . . . . . . 6
(h) Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. Market Standoff Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Delivery of Financial Statements . . . . . . . . . . . . . . . . . 8
(b) Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Termination of Covenants . . . . . . . . . . . . . . . . . . . . . . 8
(d) Stock Registration . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) Prompt Payment of Taxes, etc . . . . . . . . . . . . . . . . . . . . 9
(f) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(g) Key Person Life Insurance . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
(h) Approval of Expenditures . . . . . . . . . . . . . . . . . . . . . . 9
(j) Maintenance of Corporate Existence, etc. . . . . . . . . . . . . . . 9
7. The Purchasers' Rights to Purchase Additional Shares . . . . . . . . . . . . 10
8. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Further Instruments and Actions . . . . . . . . . . . . . . . . . . 12
(b) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . 13
(g) Counsel to the Company . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
EXHIBITS
Exhibit A Schedule of Shares Purchased by Purchasers
Exhibit B Schedule of Exceptions
Exhibit C Schedule of Current Shareholders
Exhibit D Schedule of Patent, Trademark and Copyright Rights
Exhibit E Schedule of Material Contracts
Exhibit F Employee Agreement Regarding Confidentiality and Assignment of
Inventions
<PAGE> 4
STOCK PURCHASE AGREEMENT
SERIES B PREFERRED
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of November 29,
1994, by and between CombiChem, Inc., a California corporation (the "Company"),
and SEQUOIA CAPITAL VI, a California limited partnership SEQUOIA TECHNOLOGY
PARTNERS VI, a California limited partnership, SEQUOIA XXIV, a California
limited partnership, and FORWARD VENTURES II, L.P., a Delaware limited
partnership (collectively, the "Purchasers"), which term includes any permitted
successors and assigns.
WHEREAS, the Purchasers desire to make a cash payment to the Company
as consideration for obtaining a fixed number of preferred shares of the
Company's capital stock; and
WHEREAS, the Company desires to sell a fixed number of preferred
shares of the Company's capital stock to the Purchasers; and
WHEREAS, certain defined terms used in this Agreement are referenced
in Section 9 hereof.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Purchasers
hereby agree as follows:
1. Sale of Series B Preferred Stock. Subject to the terms and
conditions of this Agreement, the Purchasers hereby purchase from the Company,
and the Company hereby agrees to issue and sell to the Purchasers at the
Closing, that number of shares of the Company's Series B Preferred Stock
indicated opposite each Purchaser's name on the Schedule of Purchasers,
attached hereto as Exhibit A and incorporated by reference herein, at a
purchase price of seventy-five cents ($0.75) per share (collectively, the
"Shares").
2. Closing. The purchase and sale of the Shares shall take place
at the offices of Gray, Cary, Ware & Freidenrich at 2:00 p.m. on November 29,
1994, and/or at such other place and time as the Company and any of the
Purchasers shall mutually agree, either orally or in writing (the "Closing").
At the Closing, subject to the terms and conditions hereof, the Company shall
deliver to the Purchasers certificates, registered in the name the Purchasers
designate by notice to the Company, representing the Shares purchased by the
Purchasers, dated the date of the Closing, and the Purchasers shall pay the
Purchase Price to the Company by check, wire transfer, or such other form of
payment as shall be mutually agreed upon by the Purchasers and the Company. At
the discretion of the Company, sale of the Shares to the Purchasers may occur
in multiple, separate closings up to December 15, 1994.
3. Representations and Warranties of the Company. Except as
specifically disclosed in this Agreement, in the schedule of exceptions
attached hereto as Exhibit B and incorporated by reference, or as otherwise
learned by the Purchaser, the Company hereby represents and warrants to the
Purchasers as follows:
<PAGE> 5
(a) Organization and Standing, Articles and Bylaws. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of California, and has all requisite corporate
power and authority to own and operate its properties and assets and to carry
on its business as presently conducted. The Company is duly qualified to do
business as a foreign corporation in each jurisdiction in which the conduct of
its business requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the Company's business.
The Company has furnished the Purchasers or their special counsel with copies
of its Articles of Incorporation and its Bylaws. Said copies are true,
correct, and complete and contain all amendments through the date of the
Closing.
(b) Capitalization. The authorized capital stock of the
Company, consists of 30,000,000 shares of no par value common stock and
10,000,000 shares of no par value preferred stock. The first series of
preferred stock is comprised of 1,000,000 shares designated "Series A Preferred
Stock". The second series of preferred stock is comprised of 1,500,000 shares
designated "Series Z Preferred Stock." The third series of preferred stock is
comprised of 2,226,667 shares designated "Series B Preferred Stock."
Immediately prior to the Closing, there are issued and outstanding 1,547,500
shares of the Company's Common Stock, 1,000,000 shares of Series A Preferred
Stock, and 200,000 shares of Series Z Preferred Stock. All issued and
outstanding shares of the Company's capital stock are represented on Exhibit C
hereto, have been duly authorized and validly issued by the Company in
compliance with applicable federal and state securities laws, and are fully
paid and nonassessable.
(c) Authorization. All corporate action on the part of
the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
the Company's obligations under this Agreement and the Stock Registration
Rights Agreement, and for the authorization, issuance, sale and delivery of the
Shares and the shares of Common Stock issuable upon conversion thereof
("Underlying Common Shares") has been taken prior to the Closing. This
Agreement, when executed and delivered by the Company and the Purchasers, and
the Stock Registration Rights Agreement shall constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors. The execution, delivery and
performance by the Company of this Agreement and compliance herewith and the
sale and issuance of the Shares and Common Stock issuable upon conversion of
the Shares will not result in any violation of and will not conflict with, or
result in a breach of any of the terms of, or constitute a default under, any
provision of state or federal law to which the Company is subject, the
Company's Articles of Incorporation or Bylaws, each as amended, or any
provision of any mortgage, indenture, agreement, instrument, judgment, decree,
order, rule or regulation or other restriction to which the Company is a party
or by which it is bound, the breach of or default under which would have a
material adverse effect upon the business or operations of the Company, or
result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company pursuant to any such term.
The Shares, when issued in compliance with the provisions of this Agreement
will be
2
<PAGE> 6
validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances; provided, however, that the Shares (and the Common Stock issuable
upon conversion thereof) may be subject to restrictions on transfer under state
and/or federal securities laws. The shares of Common Stock issuable upon
conversion of the Shares have been duly and validly reserved and are not
subject to any preemptive rights or rights of first refusal, and upon issuance,
will be validly issued, fully paid and nonassessable.
(d) Validity of the Shares. The Shares and the
Underlying Common Shares will be validly issued, fully paid and nonassessable.
(e) Subsidiaries. The Company has no subsidiaries and
does not own of record or beneficially any capital stock or equity interest or
investment in any corporation, association or business entity.
(f) Stockholders, Directors and Officers; Indebtedness.
The Company is not currently indebted to its officers, directors or
stockholders or any of their respective relatives, other than travel,
relocation, normal compensation and other expenses which are advanced and
reimbursed in the ordinary course of business. To the best of the Company's
knowledge, none of the officers or directors or significant employees or
consultants of the Company, has, individually or collectively, a material
interest in any entity which is a competitor, customer or supplier of (or has
any existing contractual relationship with) the Company.
(g) Disclosure. This Agreement and the Exhibits hereto
do not contain any untrue statement of a material fact and do not omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading. The Company has provided the Purchasers with all the
information which the Purchasers have requested for deciding whether to
purchase the Shares and all information which the Company believes is
reasonably necessary to enable the Purchasers to make such a decision.
(h) Litigation. There are no actions, suits, proceedings
or investigations pending, or to the Company's knowledge, claims asserted, to
which the Company is a party or its property is subject, which might result in
any material adverse change in the business or financial condition of the
Company or any of its properties or assets, or in any material impairment of
the right or ability of the Company to carry on its business as now conducted,
or in any material liability on the part of the Company, and none which
question the validity of this Agreement or any action taken or to be taken in
connection herewith.
(i) Consents. No consent, approval, qualification, order
or authorization of, or filing with, any governmental authority, is required in
connection with the Company's valid execution, delivery or performance of this
Agreement, or the offer, sale or issuance of the Shares by the Company, the
conversion of the Shares, the issuance of Common Stock upon conversion of the
Shares, or the consummation of any other transaction contemplated on the part
of the Company hereby, except filings required pursuant to the applicable
federal and state securities
3
<PAGE> 7
laws and blue sky laws, which filings, the Company covenants to complete within
fifteen (15) days of the Closing.
(j) Title to Properties; Liens and Encumbrances. The
Company has good and marketable title to its properties and assets and has good
title to all its leasehold interests, in each case subject to no mortgage,
pledge, lien, security interest, conditional sale agreement, encumbrance or
charge, except (i) tax, materialmen's or like liens for obligations not yet due
or payable or being contested in good faith by appropriate proceedings, or (ii)
possible minor liens or encumbrances which do not in any case materially
detract from the value of the property subject thereto or materially impair the
operations of the Company and which have not arisen otherwise then in the
ordinary course of business.
(k) Franchises, Licenses, Trademarks, Patents and Other
Rights. To the best of the Company's knowledge, it has all franchises,
permits, licenses and other similar authority necessary for the conduct of its
business, the lack of which could materially and adversely affect the
operations or condition, financial or otherwise, of the Company, and it is not
in default in any material respect under any of such franchises, permits, liens
or other similar authority. To the best of Company's knowledge, the Company
possesses certain patent, trademark, trade name and copyright rights as set
forth on Exhibit D. To the best of Company's knowledge, the Company's
intellectual property rights are sufficient to allow Company to proceed with
its business as planned and Company is not aware of any infringements of its
intellectual property rights. Reasonable security measures have been taken by
the Company to protect the secrecy, confidentiality and value of the Company's
trade secrets, confidential information, and intellectual property rights
referred to in this Section 3(k).
(l) Offering. Subject to the truth and accuracy of the
Purchasers' representations set forth in this Agreement, the offer, sale and
issuance of the Shares as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Act"), and from any applicable blue sky requirements of the State of
California.
(m) Compliance With Other Instruments. The Company is
not in violation of any term of its Articles of Incorporation or Bylaws nor any
material term of any mortgage, indenture, contract, agreement, instrument,
judgment, decree, order, statute, rule or regulation to which the Company is
subject and a violation of which would have a material adverse effect on the
condition, financial or otherwise, or operations of the Company.
(n) Employees. To the best of the Company's knowledge
and belief, no employee of the Company is in violation of any term of any
employment contract, patent disclosure agreement, non-competition agreement, or
any restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company because of the nature of the business
conducted or presently proposed to be conducted by the Company or to the use of
trade secrets or proprietary information of others. There is neither pending
nor, to
4
<PAGE> 8
the Company's knowledge and belief, threatened any actions, suits, proceedings
or claims, or to its knowledge any basis therefor or threat thereof with
respect to any contract, agreement, covenant or obligation referred to in the
preceding sentence. The Company does not have any collective bargaining
agreement covering any of its employees.
(o) Material Contracts. A true and complete list of all
contracts, agreements and investments with respect to which the Company is
party and has an obligation in excess of Twenty Thousand Dollars ($20,000) is
set forth on Exhibit E.
(p) Board of Directors. The Company's Board of Directors
consists of Ivor Royston, Robert Curtis and Peter Bick.
(q) Stock Option Plan. Commencing on November 1, 1994,
the Company has agreed not to issue, sell or otherwise transfer in excess of
one million three hundred thousand (1,300,000) shares of the Company's Common
Stock to employees, directors, officers or consultants of the Company pursuant
to any stock option plan or other arrangement approved by the Board of
Directors, which number may be increased by the approval of not less than
seventy-five percent (75%) of the Board of Directors; provided, however, that
this one million three hundred thousand (1,300,000) share limitation shall not
include any shares of Common Stock issued prior to November 1, 1994.
4. Representations and Warranties of the Purchaser. The
Purchasers hereby represent and warrant to the Company as follows:
(a) Authorization. The Purchasers have the requisite
legal power and authority to enter into this Agreement and that this Agreement
when executed shall constitute a valid and legally binding obligation of the
Purchaser.
(b) Investment Intent. This Agreement is made with the
Purchasers in reliance upon their representation to the Company, which by their
execution hereof they confirm, that the Shares have been acquired with their
own funds for investment for an indefinite period for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and that they have no present intention of selling, granting
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchasers further represent that they do not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer, or
grant participation, to such person or to any third person, with respect to any
of the Shares.
(c) Reliance Upon the Purchasers' Representations. The
Purchasers understand (i) that the Shares are not, and the Underlying Common
Shares acquired on conversion thereof at the time of issuance may not be,
registered under the Securities Act or qualified under the California Corporate
Securities Law of 1968, as amended (the "Law"), and (ii) that the Shares are
being issued to the Purchasers on the ground that the sale provided for in this
Agreement and
5
<PAGE> 9
the issuance of securities hereunder is exempt from registration under the
Securities Act pursuant to Section 4(2) thereof and/or Regulation D promulgated
thereunder and the exemption from qualification provided by Section 25102(f) of
the Law, and (iii) that the Company's reliance on such exemptions is predicated
on the Purchasers' representations set forth herein. The Purchasers realize
that the basis for the exemptions may not be present if, notwithstanding such
representations, the Purchasers have in mind merely acquiring the Shares for a
fixed or determinable period in the future, or for a market rise, or for sale
if the market does not rise. The Purchasers do not have any such intention.
These exemptions only exempt the issuance of the Shares to the Purchasers and
not any sale or other disposition of the Shares or any interest therein by the
Purchasers.
(d) Restricted Securities. The Purchasers hereby confirm
that they have been informed that the Shares are restricted securities under
the Securities Act and may not be resold or transferred unless the Shares are
first registered under the Federal securities laws or unless an exemption from
such registration is available. In addition, the Purchasers understand that
any resale or transfer must comply with applicable state securities laws.
Accordingly, the Purchasers hereby acknowledge that they are prepared to hold
the Shares for an indefinite period, and that the Purchasers are familiar with
the provisions of Rule 144 of the Securities and Exchange Commission issued
under the Securities Act, and are aware that Rule 144 is not presently
available to exempt the sale of the Shares from the registration requirements
of the Securities Act.
(e) Receipt of Information. The Purchasers acknowledge
that they have received all the information they consider necessary or
appropriate for deciding whether to purchase the Shares. The Purchasers
further represent that they have had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Shares and the business, properties, prospects, and financial
condition of the Company, and to obtain additional information (to the extent
the Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy or any information
furnished to them or to which they had access.
(f) Investment Experience. In connection with the
investment representations made herein, the Purchasers represent that each of
them; is an "accredited investor" as defined in Section 501 of Regulation D,
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment, has the ability
to bear the economic risks of its investment and has been furnished with and
has had access to all of the information it considers necessary or appropriate
to evaluate the risks and merits of an investment in the Shares, and has had an
opportunity to discuss the Company's business, management and financial affairs
with the Company's management.
(g) Limitations on Disposition. The Purchasers agree
that in no event will they make a disposition of any of the Shares, unless and
until (a) they shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (b) they shall have furnished the
6
<PAGE> 10
Company with an opinion of counsel satisfactory to the Company to the effect
that (i) such disposition will not require registration of such Shares under
the Securities Act, or (ii) that appropriate action necessary for compliance
with the Securities Act has been taken, or (c) the Company shall have waived,
expressly and in writing, its rights under clauses (a) and (b) of this
subparagraph. The opinion shall also indicate that the disposition is exempt
from, in compliance with, or qualified under all applicable state securities
laws.
(h) Legends. All certificates representing any shares of
Shares of the Company subject to the provisions of this Agreement shall have
endorsed thereon customary legends regarding:
(1) Restrictions on transfer under the Federal
Securities Act of 1933.
(2) Market Stand-Off Agreements pursuant to
Section 5 hereof.
(3) Any legend required by state securities laws.
5. Market Stand-off Agreement.
(a) In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, including the Company's initial
public offering, the Purchasers shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to the Shares without the prior written consent of
the Company or its underwriters. Such limitations shall be in effect for one
hundred eighty (180) days from and after the effective date of such
registration statement or such longer time as may be required by the Company's
underwriters. The limitations of this Section 5 shall remain in effect for the
two-year period immediately following the effective date of the Company's
initial public offering and shall thereafter terminate and cease to have any
force or effect.
(b) In the event any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding common
shares is effected without receipt of consideration, then any new, substituted
or additional securities distributed with respect to the Shares shall be
immediately subject to the provisions of this Section 5 to the same extent the
Shares are at such time covered by such provisions.
(c) In order to enforce the limitations of this Section
5, the Company may impose stop-transfer instructions with respect to the Shares
until the end of the applicable stand-off period.
(d) The obligations in this Section 5 shall not apply to
a registration relating solely to employee benefit plan shares or to a Rule 145
transaction registered on Form S-4.
7
<PAGE> 11
6. Covenants of the Company.
(a) Delivery of Financial Statements. The Company shall
deliver to the Purchasers:
(1) as soon as practicable after the end of each
fiscal year of the Company, audited financial statements for such fiscal year,
prepared in accordance with generally accepted accounting principles ("GAAP")
together with an annual report of the Company, all in reasonable detail and
certified by an independent public accountant of recognized national standing
selected by the Company;
(2) as soon as practicable after the end of each
month of each fiscal year of the Company, unaudited financial statements for
such month, prepared in accordance with generally accepted accounting
principles consistently applied, subject to changes resulting from year-end
audit adjustments and the absence of notes, all in reasonable detail and
certified by the principal financial or accounting officer of the Company;
(3) such other information relating to the
financial condition, business, prospects or corporate affairs of the Company as
the Purchasers or any assignee of the Purchasers may from time to time
reasonably request, provided, however, that the Company shall not be obligated
under provision of this Agreement to provide information which it deems in good
faith to be a trade secret or similar confidential information.
(b) Inspection. The Company shall permit the Purchasers,
at their expense, to visit and inspect the Company's properties, to examine its
books of account and records, and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be
requested by the Purchaser; provided, however, that the Company shall not be
obligated pursuant to this section to provide access to any information which
it reasonably considers to be a trade secret or similar confidential
information.
(c) Termination of Covenants. The covenants set forth in
this Section 6 shall terminate and be of no further force or effect upon the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Securities Act in connection with the firm
commitment underwritten offering of its securities to the general public where
the gross proceeds to the Company are at least five million dollars
($5,000,000).
(d) Stock Registration. Simultaneous with entering into
this Agreement, the Company and the Purchasers are entering into a Amendment to
the Series A Amended and Restated Stock Registration Rights Agreement (the
"Amendment"), to amend the definition of "Shares" under that certain Series A
Amended and Restated Stock Registration Rights Agreement, dated November 1,
1994 (the "Stock Registration Agreement"), to include the shares of Series B
Preferred Stock purchased pursuant to this Agreement.
8
<PAGE> 12
(e) Prompt Payment of Taxes, etc. The Company will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company or any
subsidiary; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company shall have set aside on its
books adequate reserves with respect thereto, and provided further, that the
Company will pay all such taxes, assessments, charges or levies forthwith upon
the commencement of proceedings to foreclose any lien which may have attached
as security therefor.
(f) Insurance. The Company will keep its assets and
those of its subsidiaries which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in the
Company's line of business, in amounts sufficient to allow it to replace any of
its properties which might be damaged or destroyed. The Company will maintain
with financially sound and reputable insurers, insurance against other hazards
and risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated.
(g) Key Person Life Insurance. The Company shall use
reasonable efforts to obtain and maintain with financially sound and reputable
insurers, an annually renewable key person term life insurance policy in the
amount of $1,000,000 on the life of its chief executive officer. Such policy
shall name the company as loss payee and shall be maintained by the Company
with financially sound and reputable insurers. The Board of Directors shall
decide whether to renew this policy on an annual basis, in its sole discretion.
(h) Approval of Expenditures. Until the Company obtains
an aggregate cash investment of three million dollars ($3,000,000) in the
Company's capital stock, (i) the Company shall submit each year's proposed
annual budget to the Company's Board of Directors prior to year-end and such
budget must be approved by not less than seventy-five percent (75%) of the
Company's Board of Directors; (ii) the Company shall not make any expenditure
in excess of $50,000 (which is not provided for in the Company's approved
annual budget) unless such expenditure is approved by an affirmative vote of
not less than seventy-five percent (75%) of the Company's Board of Directors;
and (iii) the Company shall not liquidate or otherwise dispose of any assets
with a value in excess of $50,000 without an affirmative vote of not less than
seventy-five percent (75%) of the Company's Board of Directors.
(i) Accounts and Records. The Company will keep true
records and books of account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a
consistent basis.
(j) Maintenance of Corporate Existence, etc. The Company
shall maintain in full force and effect its corporate existence, rights and
franchises and all licenses and other rights
9
<PAGE> 13
to use patents, processes, licenses, trademarks, trade names or copyrights
owned or possessed by it or any subsidiary and deemed by the Company to be
material to the conduct of their business.
(k) Availability of Common Stock for Conversion. The
Company will from time to time, in accordance with the laws of the State of
California, increase the authorized amount of Common Stock if at any time the
number of shares of Common Stock remaining unissued and available for issuance
shall be insufficient to permit conversion of all the then outstanding shares
of Series B Preferred Stock.
(l) Employee Invention and Proprietary Rights Assignment
Agreement. The Company and each person now or hereafter employed in any
technical capacity by it or any subsidiary with access to confidential
information will enter into an Employee Agreement Regarding Confidentiality and
Assignment of Inventions substantially in the form attached hereto as Exhibit F
hereto, or an alternative agreement which provides substantially similar
protection to the Company.
7. The Purchasers' Rights to Purchase Additional Shares.
(a) Subject to the terms and conditions specified in this
Section 7, the Company hereby grants to the Purchasers a right to purchase a
pro rata share of New Securities (as hereinafter defined) equal to the ratio of
(i) the aggregate number of shares of the Company's Common Stock owned by the
Purchasers immediately prior to the issuance of New Securities (assuming full
conversion of all owned convertible securities into shares of Common, Stock
of), and (ii) to the total number of shares of Common Stock outstanding on a
fully diluted basis immediately prior to the issuance of New Securities (the
"Pro Rata Share"). For purposes of this Section 7, Purchasers include any
general partners and affiliates of a Purchaser. Purchasers shall be entitled
to apportion the right to purchase additional Shares hereby granted them among
themselves and their partners and affiliates in such proportions as they deem
appropriate.
Not later than thirty calendar days after the Company sells
any shares solely for cash (excluding however securities described in Section
7(e) hereof), including any common shares, preferred shares, or securities
convertible into any shares ("New Securities"), the Company shall make an
offering of some of the New Securities to the Purchasers in accordance with the
following provisions:
(b) The Company shall deliver a notice by certified mail
("Notice") to the Purchasers stating (i) the number of New Securities sold and
available for sale, (ii) the number of such New Securities the Purchasers are
entitled to purchase, as the Purchasers' Pro Rata Shares, and (iii) the price
and terms upon which the New Securities were sold or are to be sold.
(c) Within 20 calendar days after the Company provides
such Notice, each Purchaser may elect to purchase or obtain, at the price and
on the terms specified in the Notice, up to the Purchasers' Pro Rata Share of
the New Securities.
10
<PAGE> 14
(d) If any party elects not to obtain its Pro Rata Share
of the New Securities, the Company may, during the 90-day period following the
expiration of the period provided in subsection 7(c) hereof, assign the right
to purchase the remaining unsubscribed portion of such New Securities to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Notice without offering any of such
unsubscribed New Securities to the Purchaser. If the Company does not enter
into an agreement for the sale of the New Securities within such period, or if
such agreement is not consummated within such 90-day period, the Company's
right to assign the right to purchase the New Securities provided hereunder
shall be deemed to be revoked and such New Securities shall not be offered to
any third party unless first re-offered to the Purchasers in accordance
herewith.
(e) Notwithstanding any other provision to the contrary,
the right to purchase New Securities contained in this Section 7 shall not be
applicable (i) to the issuance or sale of up to one million three hundred
thousand (1,300,000) shares of the Company's Common Stock (or related options),
issued after November 1, 1994, to employees, directors, officers or consultants
of the Company pursuant to any stock option plan or other arrangement approved
by the Board of Directors which number may be increased by the approval of not
less than seventy-five percent (75%) of the Board of Directors, provided,
however, that only a majority approval of the Company's Board of Directors
shall be required after the Company has obtained an aggregate cash investment
of Three Million Dollars ($3,000,000) in its capital stock; (ii) to or after
the consummation of a bona fide, firmly underwritten public offering of shares
of common stock, registered under the Securities Act pursuant to a registration
statement; (iii) the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities; (iv) the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
shares or otherwise; (v) to securities issued in connection with obtaining real
estate lease financing, whether issued to a lessor, guarantor or other person;
(vi) to securities issued in connection with any borrowings, direct or
indirect, from financial institutions by the Company, including without
limitation, equipment lease financing arrangements approved by the Board of
Directors; (vii) to securities issued pursuant to the acquisition of license or
other rights, assets or technology with third parties or in connection with
corporate partnering arrangements with third parties, provided that such
arrangements are approved by not less than seventy-five percent (75%) of the
Company's Board of Directors; and (viii) to securities issued in connection
with any stock split, stock dividend or recapitalization of the Company.
(f) The right to purchase New Securities set forth in
this Section 7 may not be assigned or transferred except that (i) such right is
assignable by the Purchasers to any wholly owned subsidiary or parent of, or to
any corporation or entity that is, within the meaning of the Act, controlling,
controlled by or under common control with, any such Purchaser, and (ii) such
right is assignable between and among, any of the Purchasers of the Company's
preferred stock.
(g) With respect to rights to purchase additional shares,
substantially similar to the rights provided in Section 7 of this Agreement
which were previously granted to the
11
<PAGE> 15
Purchasers, the Purchasers hereby waive all rights to notice from the Company
and to purchase any additional shares arising from the Company's sale of the
Shares pursuant to this Agreement, and from the Company's sale, prior to
January 16, 1995, of up to 26,667 Shares of Series B stock to be offered for
sale to Lynn H. Caporale.
8. Defined Terms. When used herein the following defined terms
shall have the respective definitions as set forth below:
Accredited Investor shall have the meaning set forth in Section 4(f).
Agreement shall have the meaning set forth in the first paragraph.
Closing shall have the meaning set forth in Section 2.
Company shall have the meaning set forth in first paragraph.
GAAP shall have the meaning set forth in Section 6(a)(1).
Law shall have the meaning set forth in Section 4(c).
New Securities shall have the meaning set forth in Section 7(a).
Notice shall have the meaning set forth in Section 7(b).
Pro Rata Shares shall have the meaning set forth in Section 7(a).
Purchase Price shall have the meaning set forth in Section 1.
Purchasers shall have the meaning set forth in the first paragraph.
Shares shall have the meaning set forth in Section 1.
Underlying Common Shares shall have the meaning set forth in Section
3(c).
9. Miscellaneous.
(a) Further Instruments and Actions. The parties agree
to execute such further instruments and to take such further action as may
reasonably be necessary to carry out the intent of this Agreement.
(b) Notices. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail with postage and fees prepaid, addressed
12
<PAGE> 16
to the other party hereto at its address hereinafter shown below its signature
or at such other address as such party may designate by advance written notice
to the other party hereto.
(c) Expenses. The Company and the Purchasers shall bear
their own expenses and legal fees incurred with respect to this Agreement and
the transactions contemplated hereby; provided, however, that the Company will
pay the reasonable legal fees of Wilson, Sonsini, Goodrich & Rosati, as special
counsel to some of the Purchasers, in an amount not to exceed $4,000, plus
reasonable out-of-pocket expenses.
(d) Governing Law. This Agreement has been negotiated,
executed and delivered in the State of California. The parties hereto agree
that all questions pertaining to the validity and interpretation of this
Agreement shall be determined in accordance with the laws of the State of
California.
(e) Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of the successors and assigns of the Company and, subject to the restrictions
on transfer herein set forth, be binding upon the Purchaser, its successors and
assigns.
(f) Amendments and Waivers. This Agreement represents
the entire understanding of the parties with respect to the subject matter
hereof and supersedes all previous understandings, written or oral. This
Agreement may only be amended with the written consent of the parties hereto,
or the successors or assigns of the foregoing, and no oral waiver or amendment
shall be effective under any circumstances whatsoever.
(g) Counsel to the Company. The Purchasers acknowledge
and agree that this Agreement has been prepared by Gray Cary Ware &
Freidenrich, counsel to the Company, which counsel has represented the
interests of the Company and not those of the Purchasers with respect to the
transactions documented by this Agreement. The Purchasers further acknowledge
and agree that the Purchasers have been provided the opportunity and encouraged
to consult with counsel of the Purchasers' own choosing with respect to this
Agreement. The Purchasers certify and acknowledge that the Purchasers have
carefully read all of the provisions of this Agreement and that the Purchasers
fully understand and shall fully and faithfully comply with such provisions.
13
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
COMBICHEM, INC.,
a California corporation Address:
10975 Torreyana Road, Suite 230
San Diego, California 92121
By: /s/ Robert A. Curtis
Robert A. Curtis, Chief Executive Officer
PURCHASERS:
By: /s/ PIERRE LAMOND
-----------------------------------
-----------------------------------
In the Capacity indicated for each
of the following entities:
SEQUOIA CAPITAL VI, Address:
a California Limited Partnership 3000 Sand Hill Road
a General Partner Building 4, Suite
280
Menlo Park, California 94025
SEQUOIA TECHNOLOGY PARTNERS Address:
VI, a California Limited Partnership 3000 Sand Hill Road
a General Partner Building 4, Suite
280
Menlo Park, California 94025
SEQUOIA XXIV Address:
a California Limited Partnership 3000 Sand Hill Road
a General Partner Building 4, Suite
280
Menlo Park, California 94025
[Signature Page to Series B Stock Purchase Agreement]
14
<PAGE> 18
FORWARD VENTURES II, L.P., Address:
a Delaware limited partnership 10975 Torreyana Road, Suite 230
San Diego, California 92121
By: Forward II Associates, L.P.,
a Delaware limited partnership,
its General Partner
By: /s/ Ivor Royston
----------------------------------------
Ivor Royston, a General Partner
[Signature Page to Series B Stock Purchase Agreement]
15
<PAGE> 19
EXHIBIT A
SCHEDULE OF SHARES PURCHASED BY PURCHASER
<TABLE>
<CAPTION>
Number of Shares
Purchaser of Preferred Purchase Price
- --------- ------------ --------------
<S> <C> <C>
SEQUOIA CAPITAL VI 1,213,334 910,000.50
SEQUOIA TECHNOLOGY
PARTNERS VI 66,667 50,000.25
SEQUOIA XXIV 53,333 39,999.75
FORWARD VENTURES II, L.P. 866,666 649,999.50
Total 2,200,000 1,650,000.00
</TABLE>
<PAGE> 20
EXHIBIT B
SCHEDULE OF EXCEPTIONS
1. Capitalization (Section 3(b))
175,000 shares of Common Stock have been committed for issuance in
that certain Employment Offer to Lynn H. Caporale dated November 8, 1994;
10,000 shares of Common Stock have been committed for issuance in that
certain Employment Offer Letter Agreement with Bobbie Bosley dated November 18,
1994.
325,000 to 400,000 shares of Series Z Preferred are reserved for
issuance to The Scripps Research Institute ("Scripps") in that certain Scripps
Research Institute Licensing Letter of Understanding dated August 23, 1994;
Up to 150,000 shares of Series Z Preferred are presently committed for
issuance pursuant to that certain Warrant Commitment Letter with Comdisco, Inc.
dated November 23, 1994 and this number could increase due to anti-dilution
protection given pursuant to the proposed warrant agreement; and
26,667 shares of Series B Preferred have been offered for sale to Lynn
H. Caporale in that certain Employment Offer to Lynn H. Caporale dated November
8, 1994.
2. Employees (Section 3(f))
Robert A. Curtis owns stock in and is a former officer of Pharmacopeia
which is a competitor of the Company; and
Lynn H. Caporale owns stock in and is a former employee of Merck.
3. Litigation (Section (3h))
Affymax and Company have independent patent rights which may be
blocking. Affymax currently utilizes the name CombiChem in its presentations.
4. Intellectual Property (Section 3(k))
The Company is a start up entity which is in the process of
negotiating with The Scripps Research Institute and Johnson and Johnson to
secure licensing rights to certain patents and other intellectual property
which may be important to the operation of the Company's current and future
business. The Company is not aware of any competing intellectual property
rights held by third parties which adversely affect the Company's right to
utilize its intellectual property or the conduct of the Company's current or
future business endeavors.
<PAGE> 21
EXHIBIT C
SCHEDULE OF STOCK HOLDERS
(Common and Preferred)
<PAGE> 22
COMBICHEM, INC.
COMMON STOCK LEDGER
<TABLE>
<CAPTION>
=======================================================================================================
Cert # No. of Shares Shareholder Date issued
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 175,000 KIM D. JANDA September 28th, 1994
- -------------------------------------------------------------------------------------------------------
2 150,000 CHI-HUEY WONG September 28th, 1994
- -------------------------------------------------------------------------------------------------------
3 150,000 DALE L. BOGER September 28th, 1994
- -------------------------------------------------------------------------------------------------------
4 10,000 ERIC ERB September 28th, 1994
- -------------------------------------------------------------------------------------------------------
5 37,500 STANDISH FLEMING September 28th, 1994
- -------------------------------------------------------------------------------------------------------
6 37,500 ROYSTON FAMILY TRUST September 28th, 1994
- -------------------------------------------------------------------------------------------------------
7 150,000 SYDNEY BRENNER September 28th, 1994
- -------------------------------------------------------------------------------------------------------
8 225,000 FORWARD VENTURES II, L.P. September 28th, 1994
- -------------------------------------------------------------------------------------------------------
9 10,000 JEFFREY SOLLENDER September 28th, 1994
- -------------------------------------------------------------------------------------------------------
10 500,000 ROBERT CURTIS October 18, 1994
- -------------------------------------------------------------------------------------------------------
11 2,500 GAIL ERWIN October 28, 1994
- -------------------------------------------------------------------------------------------------------
12 91,000 SEQUOIA CAPITAL VI November 1, 1994
- -------------------------------------------------------------------------------------------------------
13 5,000 SEQUOIA TECHNOLOGY PARTNERS VI November 1, 1994
- -------------------------------------------------------------------------------------------------------
14 4,000 SEQUOIA XXIV November 1, 1994
- -------------------------------------------------------------------------------------------------------
15 10,000 BOBBIE BOSLEY November 18, 1994*
- -------------------------------------------------------------------------------------------------------
16 175,000 LYNN A CAPORALE November 8, 1994*
- -------------------------------------------------------------------------------------------------------
TOTAL 1,732,500
=======================================================================================================
</TABLE>
* Shares contractually committed as of the date hereof pursuant
to offer letters executed as of the dates indicated, but
issuances have not yet been completed.
<PAGE> 23
PREFERRED STOCK LEDGER
<TABLE>
<CAPTION>
=======================================================================================================
Cert # No. of Shares Shareholder Date issued
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PA1 600,000 FORWARD VENTURES II, L.P. August 26th, 1994
- -------------------------------------------------------------------------------------------------------
PA2 364,000 SEQUOIA CAPITAL VI November 1, 1994
- -------------------------------------------------------------------------------------------------------
PA3 20,000 SEQUOIA TECHNOLOGY PARTNERS VI November 1, 1994
- -------------------------------------------------------------------------------------------------------
PA4 16,000 SEQUOIA XXIV November 1, 1994
=======================================================================================================
TOTAL 1,000,000
Series A
=======================================================================================================
PZ1 200,000 SYDNEY BRENNER October 12th, 1994
=======================================================================================================
TOTAL 1,200,000
Preferred
=======================================================================================================
</TABLE>
<PAGE> 24
EXHIBIT D
SCHEDULE OF PATENT, TRADEMARK AND COPYRIGHT RIGHTS
1. PATENTS
(a) The Company has been assigned rights to the following patents:
(1) Sydney Brenner, "Combinatorial libraries and methods
for their use," US Patent Application Serial No. 07/978,646, filed November 19,
1992.
(2) Sydney Brenner, "Combinatorial libraries and methods
for their use," US Patent Application Serial No. 08/168,966, filed December 15,
1993 (continuation in part of 07/978,646).
(3) Sydney Brenner, "Combinatorial libraries and methods
for their use," US Patent Application Serial No. 08/281,195, filed July 26,
1994 (continuation in part of 08/168,966).
(4) Sydney Brenner, "Multidimensional conduit
combinatorial library synthesis device," US Patent Application Serial No.
08/281,194, filed July 26, 1994.
(b) The Company is in the process of negotiating licenses to use
the following patents from The Scripps Research Institute and Johnson and
Johnson:
See attached TSRI Technology License Letter of Understanding
Known Issues
Affymax Corporation's Patent Application (International Application
No. PCT/US92/07815) may prove to be blocking on the Brenner/Lemer/Janda Patent
Applications (U.S. Serial No. 07/860,445 or International Application No. PCT
US93/20243).
The Company does not have a licensing agreement with Johnson & Johnson
and does not have a definitive written agreement with Scripps Research
Institute beyond the Letter of Understanding.
2. TRADEMARKS
The Company has been assigned the following intent to use trademark
applications:
COMBICHEM Serial No. 74/363,514
COMBICHEM Serial No. 74/363,515
<PAGE> 25
Known Issues
Affymax Corporation has attempted to register the CombiChem trademark
in the United States and such attempt was rejected. To the Company's
knowledge, Affymax has not registered the CombiChem trademark in Europe. The
Company has not registered the CombiChem trademark outside of the United
States.
3. COPYRIGHTS
The Company does not possess any registered copyrights.
<PAGE> 26
EXHIBIT E
SCHEDULE OF MATERIAL CONTRACTS
1. Asset Purchase Agreement with CombiChem, Inc., a Delaware corporation
dated September 28, 1994;
2. Promissory Note to CombiChem, Inc., a Delaware corporation dated
September 28, 1994;
3. Series A Stock Purchase Agreement with Forward Ventures II, L.P.,a
Delaware limited partnership dated August 26, 1994; (plus supplement)
4. Series Z Stock Purchase Agreement with Dr. Sydney Brenner dated
October 12, 1994;
5. Series Z Stock Registration Rights Agreement with Dr. Sydney Brenner
dated October 12, 1994;
6. Employment Agreements with Robert A. Curtis dated October 18, 1994,
Eric Erb dated August 16, 1994 and Jeffrey Sollender dated June 23,
1994;
7. Consulting Agreements with Dr. Sydney Brenner dated August 10, 1994,
Dale L. Boger dated July 25, 1994, Kim D. Janda dated August 9, 1994,
and Chi-Huey Wong dated August 11, 1994;
8. Termination Agreement dated October 20, 1994 with David Palella dba
BioScience Ventures; Company currently owes Mr. Palella $25,000;
9. Sublease of Research Space from Science Applications International
Corporation dated September 1, 1994;
10. $175,000 Purchase Order for NMR Equipment
11 $25,000 Purchase Order for Ionized Water Purifier
12. Tenant Improvement Contract(s) and change orders thereto aggregating
to $25,000;
13. The Scripps Research Institute Licensing Letter of Understanding dated
August 23, 1994;
14. Equipment Master Lease and VL-1 Schedule Agreement dated November 16,
1994 with Comdisco, Inc. and Warrant Commitment Letter dated November
23, 1994;
15. Stock Purchase Agreement Preferred and Common with Sequoia Capital
dated November 1, 1994;
16. Amended and Restated Series A Registration Rights Agreement dated
November 1, 1994;
17. Employment Offer to Lynn H. Caporale dated November 8, 1994; and
18. Employment Offer Letter Agreement with Bobbie Bosley dated November
18, 1994.
<PAGE> 27
EXHIBIT F
COMBICHEM, INC.
EMPLOYEE AGREEMENT REGARDING
CONFIDENTIALITY AND ASSIGNMENT OF INVENTIONS
This Agreement is intended to formalize in writing certain
understandings and procedures which have been in effect since the time I was
initially, employed by CombiChem, Inc., a California corporation (the
"Company"). In return for my new or continued employment by the Company, I
acknowledge and agree that:
1. No Conflict. I will perform for the Company such duties as
may be designated by the Company from time to time. During my period of
employment by the Company, I will devote my best efforts to the interests of
the Company and will not engage in other employment or in any activities
determined by the Company to be detrimental to the best interests of the
Company without the prior written consent of the Company.
2. Period of Employment. As used herein. the period of my
employment includes any time in which I may be retained by the Company as a
consultant.
3. Prior Work. All previous work done by me for the Company
relating in any way to the conception, design, development or support of
products for the Company is the property of the Company.
4. Proprietary Information. My employment creates a relationship
of confidence and trust between the Company and me with respect to any
information:
(a) Applicable to the business of the Company; or
(b) Applicable to the business of any client or customer of the
Company, which may be made known to me by the company or by any client or
customer of the Company, or learned by me in such context during the period of
my employment.
All of such information has commercial value in the business in which
Company is engaged and is hereinafter called "Proprietary Information." By way
of illustration, but not limitation, Proprietary Information includes any and
all technical and non-technical information including patent, copyright, trade
secret, and proprietary information, techniques, sketches, drawings, models,
inventions, know-how, processes, apparatus, equipment, algorithms, software
programs, software source documents, and formulae related to the current,
future and proposed products and services of Company, and includes, without
limitation, its respective information concerning research, experimental work,
development, design details and specifications, engineering, financial
information, procurement
<PAGE> 28
requirements, purchasing manufacturing, customer lists, business forecasts,
sales and merchandising and marketing plans and information.
5. Nondisclosure of Proprietary Information. All Proprietary
Information is the sole property of the Company, its assigns, and its customers
and the Company, its assigns and its customers shall be the sole owner of all
patents, copyrights, maskworks, trade secrets and other rights in connection
therewith. I hereby assign to the Company any rights I may have or acquire in
such Proprietary Information. At all times, both during my employment by the
Company and after its termination, I will keep in confidence and trust all
Proprietary Information, and I will not use or disclose any Proprietary
Information or anything directly relating to it without the written consent of
the Company, except as may be necessary in the ordinary course of performing my
duties as an employee of the Company. Notwithstanding the foregoing, it is
understood that, at all such times, I am free to use information which is
generally known in the trade or industry not as a result of a breach of this
Agreement and my own skill, knowledge, know-how and experience to whatever
extent and in whatever way I wish.
6. Return of Materials. Upon termination of my employment or at
the request of the Company before termination, I will deliver to the Company
all written and tangible material in my possession incorporating the
Proprietary Information or otherwise relating to the Company's business.
7. Inventions. As used in this Agreement, the term "Inventions"
means any and all new or useful art, discovery, improvement, technical
development, or invention whether or not patentable, and all related know-how,
designs, maskworks, trademarks, formulae, processes, manufacturing techniques,
trade secrets, ideas, artwork, software or other copyrightable or patentable
works.
8. No Adverse Use. I will not at any time during the Period of
Employment or thereafter use the Company's Proprietary Information or
Inventions in any manner which may directly or indirectly have an adverse
effect upon the Company's business, nor will I perform any acts which would
tend to reduce the Company's proprietary value in the Company's Proprietary
Information or Inventions.
9. Disclosure of Prior Inventions. I have identified on Exhibit
A ("Prior Inventions') attached hereto all Inventions relating in any way to
the Company's business or demonstrably anticipated research and development
which were made by me prior to my employment with the Company ("Prior
Inventions"), and I represent that such list is complete. I represent that I
have no rights in any such Inventions other than those Prior Inventions
specified in Exhibit A ("Prior Inventions"). If there is no such list on
Exhibit A ("Prior Inventions"), I represent that I have made no such Prior
Inventions at the time of signing this Agreement.
10. Ownership of Company Inventions; License of Prior Inventions.
I hereby agree promptly to disclose and describe to the Company, and I hereby
assign and agree to assign to the Company or its designee, my entire right,
title, and interest in and to all Inventions and
<PAGE> 29
any associated intellectual property rights which I may solely or jointly
conceive, develop or reduce to practice during the period of my employment with
the Company (a) which relate at the time of conception or reduction to practice
of the invention to the Company's business or actual or demonstrably
anticipated research or development, or (b) which were developed on any amount
of the Company's time or with the use of any of the Company's equipment,
supplies, facilities or trade secret information, or (c) which resulted from
any work I performed for the Company ("Company Inventions"). I agree to grant
the Company or its designees a royalty free, irrevocable, worldwide license
(with rights to sublicense through multiple tiers of distribution) to practice
all applicable patent, copyright and other intellectual rights relating to any
Prior Inventions which I incorporate, or permit to be incorporated, in any
Company Inventions. Notwithstanding the foregoing, I agree that I will not
incorporate, or permit to be incorporated, such Prior Inventions in any Company
Inventions without the Company's prior written consent.
11. Future Inventions. I recognize that Inventions or Proprietary
Information relating to my activities while working for the Company and
conceived or made by me, alone or with others, within one (1) year after
termination of my employment may have been conceived in significant part while
employed by the Company. Accordingly, I agree that such Inventions and
Proprietary Information shall be presumed to have been conceived during my
employment with the Company and are to be assigned to the Company unless and
until I have established the contrary.
12. Nonassignable Inventions. This Agreement does not apply to an
Invention which qualifies fully as a nonassignable Invention under the
provisions of Section 2870 of the California Labor Code. I have reviewed the
notification in Exhibit B ("Limited Exclusion Notification") and agree that my
signature acknowledges receipt of the notification. However, I agree to
disclose promptly in writing to the company all Inventions made or conceived by
me during the term of my employment and for one (1) year thereafter, whether or
not I believe such Inventions are subject to this Agreement, to permit a
determination by the Company as to whether or not the Inventions should be the
property of the Company. Any such information will be received in confidence
by the Company.
13. Disclosure and Prior Review of Articles. I agree that, while
an employee of the Company and for three years following the termination, for
any reason, of my employment with the Company, at least fifteen days prior to
submission for publication of any article or contribution from or by me, which
article or contribution deals with or makes reference to the Company's field of
endeavors, any Inventions, any Proprietary Information or any other subject
pertaining to the Company, I shall deliver a copy of such article or
publication to the Company and shall request the Company's permission to
publish such articles which consent shall not be unreasonably withheld.
14. Cooperation in Perfecting Rights to Inventions.
(a) I agree to perform, during and after my employment,
all acts deemed necessary or desirable by the Company to permit and assist it,
at its expense, in obtaining and enforcing the full benefits, enjoyment, rights
and title throughout the world in the Inventions
<PAGE> 30
hereby assigned to the Company. Such acts may include, but are not limited to,
execution of documents and assistance or cooperation in the registration and
enforcement of applicable patents, copyrights, maskworks or other legal
proceedings.
(b) In the event that the Company is unable for any
reason to secure my signature to any document required to apply for or execute
any patent, copyright, mask work or other applications with respect to any
Inventions (including improvements, renewals, extensions, continuations,
divisions or continuations in part thereof), I hereby irrevocably designate and
appoint the Company and its duly authorized officers and agents as my agents
and attorneys-in-fact to act for and on my behalf and instead of me, to execute
and file any such application and to do all other lawfully permitted acts to
further the prosecution and issuance of patents, copyrights, maskworks or other
rights thereon with the same legal force and effect as if executed by me.
15. No Violation of Rights of Third Parties. My performance of
all the terms of this Agreement and as an employee of the Company does not and
will not breach any agreement to keep in confidence proprietary information,
knowledge or data acquired by me prior to my employment with the Company, and I
will not disclose to the Company, or induce the Company to use, any
confidential or proprietary information or material belonging to any previous
employer or others. I am not a party to any other agreement which will
interfere with my full compliance with this Agreement. I agree not to enter
into any agreement, whether written or oral, in conflict with the provisions of
this Agreement. To my knowledge, no former employer has claimed or could claim
that my activities under this Agreement violate any previous employment
agreement with or infringe upon the intellectual property rights of any former
employer except as disclosed on Exhibit C ("Possible Violations of Former
Employment Agreements") attached hereto.
16. Survival. This Agreement (a) shall survive my employment by
the Company, (b) does not in any way restrict my right or the right of the
Company to terminate my employment at any time, for any reason or for no
reason, (c) inures to the benefit of successors and assigns of the Company, and
(d) is binding upon my heirs and legal representatives.
17. No Solicitation. During the term of my employment with the
Company and for a period of two (2) years thereafter, I will not solicit,
encourage, or cause others to solicit or encourage any employees of the Company
to terminate their employment with the Company.
18. Injunctive Relief. A breach of any of the promises or
agreements contained herein will result in irreparable and continuing damage to
the Company for which there will be no adequate remedy at law, and the Company
shall be entitled to injunctive relief and/or a decree for specific
performance, and such other relief as may be proper (including monetary damages
if appropriate).
19. Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (i) by personal delivery when delivered personally; (ii) by
overnight courier upon written
<PAGE> 31
verification of receipt; (iii) by telecopy or facsimile transmission upon
acknowledgement of receipt of electronic transmission; or (iv) by certified or
registered mail, return receipt requested, upon verification of receipt.
Notice shall be sent to the addresses set forth above or such other address as
either party may specify in writing.
20. Governing Law. This Agreement shall be governed in all
respects by the laws of the United States of America and by the laws of the
State of California, as such laws are applied to agreements entered into and to
be performed entirely within California between California residents.
21. Severability. Should any provisions of this Agreement be held
by a court of law to be illegal, invalid or unenforceable, the legality,
validity and enforceability of the remaining provisions of this Agreement shall
not be affected or impaired thereby.
22. Waiver. The waiver by the Company of a breach of any
provision of this Agreement by me shall not operate or be construed as a waiver
of any other or subsequent breach by me.
23. Entire Agreement. This Agreement represents my entire
understanding with the Company with respect to the subject matter of this
Agreement and supersedes all previous understandings, written or oral. This
Agreement may be amended or modified only with the written consent of both me
and the Company. No oral waiver, amendment or modification shall be effective
under any circumstances whatsoever.
<PAGE> 32
I certify and acknowledge that I have carefully read all of
the provisions of this Agreement and that I understand and will fully and
faithfully comply with such provisions.
COMPANY: EMPLOYEE:
COMBICHEM, INC.,
a California corporation
By: __________________________ By: _____________________________
Title: __________________________ Printed Name:____________________
Dated: ________________________ Dated: ________________________
<PAGE> 33
Exhibit A
PRIOR INVENTIONS
________ Yes, I claim an ownership interest in the following inventions.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
_________ No, I do not claim an ownership interest in any inventions.
By:___________________________________
______________________________________
(Printed Name of Employee)
Date:_________________________________
Witnessed by:
___________________________________
___________________________________
(Printed Name of Representative)
Dated:_____________________________
<PAGE> 34
Exhibit B
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the
California Labor Code that the foregoing Agreement between you and the Company
does not require you to assign or offer to assign to the Company any invention
that you developed entirely on your own time without using the Company's
equipment, supplies, facilities or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company.
(2) Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to
require you to assign an invention otherwise excluded from the preceding
paragraph, the provision is against the public policy of this state and is
unenforceable.
This limited exclusion does not apply to any patent or invention
covered by a contract between the Company and the United States or any of its
agencies requiring full title to such patent or invention to be in the United
States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By:___________________________________
Dated:________________________________
Witnessed by:
___________________________________
___________________________________
(Printed Name of Representative)
Dated:_____________________________
<PAGE> 35
Exhibit C
POSSIBLE VIOLATIONS OF FORMER EMPLOYMENT AGREEMENTS OR
FORMER EMPLOYER'S INTELLECTUAL PROPERTY RIGHTS
_________ I am aware of the following potential violations of former
employment agreements, or infringements upon the intellectual
property rights of former employer(s) which could occur due to
my contemplated activities under the Employee Agreement or
that have occurred due to my previous activities on behalf of
the Company.
Describe in detail any potential violations or infringements:
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
_________ I am unaware of any potential violations of former employment
agreements, or infringements upon the intellectual property
rights of former employer(s) which could occur due to my
contemplated activities under the Employee Agreement or that
have occurred due to my previous activities on behalf of the
Company.
By:___________________________________
___________________________________
___________________________________
(Printed Name of Employee)
Date:_________________________________
Witnessed by:
____________________________________
____________________________________
(Printed Name of Representative)
Dated:______________________________
<PAGE> 1
EXHIBIT 10.5
COMBICHEM, INC.
SERIES C PREFERRED
STOCK PURCHASE AGREEMENT
__________________________________
August 17, 1995
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C> <C>
1. Purchase and Sale of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Series C Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Organization; Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Valid Issuance of Preferred and Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Capitalization and Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Contracts and Other Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Related-Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.10 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.11 Compliance with Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.14 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Title to Property and Assets; Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.17 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.18 Patents and Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.19 Manufacturing and Marketing Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Employees; Employee Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.21 Proprietary Information and Inventions Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.22 Tax Returns, Payments and Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Environmental and Safety Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.25 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.26 Real Property Holding Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.27 Small Business Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.28 Qualified Small Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3. Representations and Warranties of the Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Reliance Upon Investors' Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Receipt of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Investment Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
i
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.6 Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Public Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.10 Non-U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5. Conditions of Investor's Obligations at Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.4 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Small Business Concern Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.9 Opinion of Company Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.10 Investors' Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.11 Co-Sale Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.12 No Change in Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.13 No Acceleration of Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.14 Filing of Restated Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6. Conditions of the Company's Obligations at Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Co-Sale Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Survival of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.6 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.8 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.10 Attorneys Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.11 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.13 Corporate Securities Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.14 Exculpation Among Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii.
<PAGE> 4
COMBICHEM, INC.
SERIES C PREFERRED
STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is made as of the 17th day of August, 1995, by and between
CombiChem, Inc., a California corporation (the "Company"), and each of the
persons listed on Schedule A hereto, each of which is herein referred to as an
"Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series C Preferred Stock.
1.1.1 The Company shall adopt and file with the Secretary
of State of California on or before the First Closing (as defined below) an
Amended and Restated Articles of Incorporation in the form attached hereto as
Exhibit A (the "Restated Articles").
1.1.2 Subject to the terms and conditions of this
Agreement, each Investor agrees, severally and not jointly, to purchase at each
Closing and the Company agrees to sell and issue to each Investor, severally
and not jointly, at each Closing that number of shares of the Company's Series
C Preferred Stock set forth opposite each Investor's name on Schedule A hereto
under the headings "First Closing" and "Second Closing," respectively, at a
price of $0.62 per share for an aggregate amount to be sold to all Investors at
the First Closing and Second Closing of at least 14,516,129 shares.
1.2 Closings.
1.2.1 The first tranche of the purchase and sale of
the Series C Preferred Stock will occur in a series of one or more closings,
the first of which shall take place at the offices of Brobeck, Phleger &
Harrison, 550 West C Street, Suite 1300, San Diego, California, at 10:00 a.m.
on August 17, 1995, or at such other time and place as the Company and
Investors acquiring in the aggregate more than half the shares of Series C
Preferred Stock sold pursuant hereto shall mutually agree in writing (the
"Initial Closing"). Additional closings within the first tranche may occur no
later than 45 days after August 17, 1995 at such additional times, dates and
places as the Company and Investors acquiring in the aggregate more than half
the shares of Series C Preferred Stock sold pursuant hereto shall mutually
agree in writing (which times, dates and places are designated collectively as
the "Follow-on Closing"; collectively, the Initial Closing and the Follow-on
Closing shall be known as the "First Closing").
1.2.2 The second tranche will occur in one closing
(the "Second Closing" and collectively with the First Closing, a "Closing")
which shall take place after the
<PAGE> 5
First Closing on the earlier of: (a) on or before March 31, 1996 upon the
achievement of all of the following (collectively, the "Milestones"): (I)
completion of the following five combinatorial libraries: amidazole, integrin,
central nervous system, G Protein and dipeptide mimic; (II) completion of the
beta test model of CombiSyn SP 100; and (III) completion of a diversity measure
software program; or (b) on or before June 30, 1996 in the event that all of
the Milestones have not been achieved on or before March 31, 1996, and holders
of a majority of the shares of Series C Preferred Stock sold at the First
Closing determine to proceed with the Second Closing. The purchase and sale of
the Series C Preferred Stock at the Second Closing shall take place at the
offices of Brobeck, Phleger & Harrison, 550 West C Street, Suite 1300, San
Diego, California, at such time and place as the Company and Investors
acquiring in the aggregate more than half the shares of Series C Preferred
Stock sold pursuant to the Second Closing shall mutually agree in writing.
1.2.3 At each Closing, the Company shall deliver to
each Investor a certificate representing the shares of Series C Preferred Stock
that such Investor is purchasing against payment of the purchase price therefor
by check, wire transfer, cancellation of indebtedness or such other form of
payment as shall be mutually agreed upon by such Investor and the Company. In
the event that payment by an Investor is made, in whole or in part, by
cancellation of indebtedness, then such Investor shall surrender to the Company
for cancellation at such Closing any evidence of such indebtedness or shall
execute an instrument of cancellation in form and substance reasonably
acceptable to the Company.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that, except as set forth on a
Schedule of Exceptions furnished each Investor and special counsel for the
Investors, which exceptions shall be deemed to be representations and
warranties as if made hereunder:
2.1 Organization; Good Standing; Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted, to execute and
deliver this Agreement, the Investors' Rights Agreement, and any other
agreement to which the Company is a party and the execution and delivery of
which is contemplated hereby (the "Ancillary Agreements"), to issue and sell
the Series C Preferred Stock and the Common Stock issuable upon conversion
thereof, and to carry out the provisions of this Agreement, the Investors'
Rights Agreement, the Restated Articles and any Ancillary Agreement. The
Company is not qualified to do business as a foreign corporation in any
jurisdiction and such qualification is not now required.
2.2 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement the Investors' Rights
Agreement and any Ancillary Agreement, the performance of all obligations of
the Company hereunder and thereunder at the Closing and the authorization,
issuance (or reservation for issuance), sale, and delivery of the Series C
Preferred Stock being
2.
<PAGE> 6
sold hereunder, the warrants issuable pursuant to certain convertible revolving
promissory notes, the principal and accrued interest on which are being
converted into Series C Preferred Stock at the Initial Closing (the "Series C
Warrants"), the Series C Preferred Stock issuable upon exercise of the Series C
Warrants, the Series C-1 Preferred Stock issuable upon conversion of the Series
C Preferred Stock and the Common Stock issuable upon conversion of the Series C
Preferred Stock or Series C-1 Preferred Stock has been taken or will be taken
prior to the Initial Closing, and this Agreement, the Investors' Rights
Agreement, and any Ancillary Agreement constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, except (i) as limited by applicable bankruptcy, insolvency, moratorium,
and other laws of general application affecting enforcement of creditors'
rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies, and (iii)
to the extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities law.
2.3 Valid Issuance of Preferred and Common Stock. The Series C
Preferred Stock that is being purchased by the Investors hereunder and the
Series C Warrants, when issued, sold and delivered in accordance with the terms
of this Agreement for the consideration expressed herein, will be duly and
validly issued, fully paid, and nonassessable, and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and the
Investors' Rights Agreement (and with respect to the Series C Warrants,
pursuant to the terms thereof) and under applicable state and federal
securities laws. The Series C-1 Preferred Stock issuable upon conversion of
the Series C Preferred Stock purchased under this Agreement and the Common
Stock issuable upon conversion of such Series C Preferred Stock and the Series
C-1 Preferred Stock have been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Articles, will be duly
and validly issued, fully paid, and nonassessable and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and the Investors' Rights Agreement and under applicable state and
federal securities laws. The Series C Preferred Stock that is being purchased
hereunder, the Series C Warrants, the Series C Preferred Stock issuable upon
exercise thereof, the Series C-1 Preferred Stock issuable upon conversion of
the Series C Preferred Stock and the Common Stock issuable upon conversion of
the Series C Preferred Stock or Series C-1 Preferred Stock are not subject to
any pre-emptive rights or rights of first refusal which have not been
previously waived.
2.4 Governmental Consents. No consent, approval, qualification,
order or authorization of, or filing with, any local, state or federal
governmental authority is required on the part of the Company in connection
with the Company's valid execution, delivery or performance of this Agreement,
the offer, sale or issuance of the Series C Preferred Stock by the Company, the
issuance of the Series C Warrants by the Company or the issuance of Series C
Preferred Stock upon exercise of the Series C Warrants, the issuance of Series
C-1 Preferred Stock upon conversion of the Series C Preferred Stock or the
issuance of Common Stock upon conversion of the Series C Preferred Stock or
Series C-1 Preferred Stock, except (i) the filing of the Restated Articles with
the Secretary of State of the State of California, and
3.
<PAGE> 7
(ii) such filings as have been made prior to Initial Closing, except that any
notices of sale required to be filed under applicable state securities laws,
which will be timely filed within the applicable periods therefor.
2.5 Capitalization and Voting Rights. The authorized capital of
the Company consists, or will consist prior to the Initial Closing, of:
2.5.1 Preferred Stock. 50,418,334 shares of Preferred
Stock, no par value (the "Preferred Stock"), of which 1,000,000 shares have
been designated Series A Preferred Stock, all of which are issued and
outstanding, 2,226,667 shares have been designated Series B Preferred Stock,
all of which are issued and outstanding, 1,500,000 shares have been designated
Series Z Preferred Stock, 200,000 of which are issued and outstanding, 465,000
shares have been designated Series J Preferred Stock, none of which are issued
and outstanding, 1,000,000 shares have been designated Series A-1 Preferred
Stock, none of which are issued and outstanding, 2,226,667 shares have been
designated Series B-1 Preferred Stock, none of which are issued and
outstanding, 21,000,000 shares have been designated Series C-1 Preferred Stock,
none of which are issued and outstanding, and 21,000,000 shares have been
designated Series C Preferred Stock, at least 14,516,129 of which will be sold
pursuant to this Agreement. The rights, privileges and preferences of the
Series A, Series B, Series C, Series J, Series Z, Series A-1, Series B-1 and
Series C-1 Preferred Stock will be as stated in the Restated Articles.
2.5.2 Common Stock. 60,000,000 shares of common stock
("Common Stock"), no par value, of which 2,917,500 shares are issued and
outstanding.
2.5.3 The outstanding shares of Preferred Stock and Common
Stock are owned by the shareholders and in the numbers specified in Exhibit C
hereto.
2.5.4 The outstanding shares of Preferred Stock and Common
Stock have been issued in accordance with the registration or qualification
provisions of the Securities Act of 1933, as amended (the "Securities Act") and
any relevant state securities laws or pursuant to valid exemptions therefrom.
2.5.5 Except for (A) the conversion privileges of the
Preferred Stock, (B) the rights provided in paragraph 2.3 of the Investors'
Rights Agreement (which rights replace similar rights of first refusal set
forth in certain stock purchase agreements pursuant to which certain holders of
the Company's Series A, Series B and Series Z Preferred Stock purchased their
shares), (C) currently outstanding options to purchase 50,000 shares of Common
Stock granted to employees or consultants pursuant to the Company's 1995 Stock
Option/Stock Issuance Plan (the "Plan"), (D) options to purchase 465,000 shares
of Series J Preferred Stock granted or to be granted to certain employees in
connection with their employment by the Company, (E) 120,968 shares of Series C
Preferred Stock issuable upon conversion of the Series C Warrants, (F) up to
83,655 shares of Series Z Preferred Stock issuable upon conversion of warrants
issued (or to be issued) in connection with the Company's equipment
4.
<PAGE> 8
lease line, (G) 35,000 shares of Common Stock issuable upon conversion of
warrants outstanding at the Initial Closing and (H) up to 325,807 shares of
Series Z Preferred Stock issuable in connection with that certain Agreement
dated August 4, 1995 among the Company, Molecular Simulations Inc. and Entropix
Corporation, there are not outstanding any options, warrants, rights (including
conversion or preemptive rights and rights of first refusal) or agreements for
the purchase or acquisition from the Company of any shares of its capital
stock. In addition to the aforementioned options, the Company has reserved an
additional 3,370,274 shares of its Common Stock for purchase or upon exercise
of options to be granted in the future under the Plan or other employee
arrangement approved by the Board of Directors of the Company. The Company is
not a party or subject to any agreement or understanding, and, to the best of
the Company's knowledge, there is no agreement or understanding between any
persons that affects or relates to the voting or giving of written consents
with respect to any security or the voting by a director of the Company.
2.6 Subsidiaries. The Company does not own or control, directly
or indirectly, any interest in any other corporation, association or other
business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.
2.7 Contracts and Other Commitments. The Schedule of Exceptions
contains a complete list of all of the following agreements to which the
Company is a party: (a) all contracts, agreements and instruments which involve
a commitment by, or payments to, the Company in excess of $50,000.00; (b) all
stock purchase agreements; (c) all loan or debt agreements; (d) all employment
agreements; (e) all licenses of any patent, trade secret or other proprietary
right to or from the Company; and (f) all indemnification agreements
(collectively, the "Material Agreements"). All the Material Agreements are
valid and binding obligations of the Company, in full force and effect in all
material respects. The Company is not aware of any material default, either
pending or threatened, with respect to the Material Agreements. The Company is
not a party to and is not bound by any contract, agreement or instrument, or
subject to any restriction under its charter documents or Bylaws, which
adversely affects its business as presently conducted or as currently proposed
to be conducted, its properties or its financial condition.
The Company has not (i) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or series of its
capital stock, (ii) incurred any indebtedness for money borrowed or incurred
any other liabilities individually in excess of $25,000 or in excess of $50,000
in the aggregate, (iii) made any loans or advances to any person, other than
ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory
in the ordinary course of business. The Company has not engaged in the past
three months in any discussion (i) with any representative of any corporation
or corporations regarding the consolidation or merger of the Company with or
into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets
of the Company or a transaction or series of related transactions in which more
than 50% of the voting power of
5.
<PAGE> 9
the Company is disposed of, or (iii) regarding any other form of acquisition,
liquidation, dissolution or winding up of the Company.
2.8 Related-Party Transactions. No employee, officer or director
of the Company or member of his or her immediate family thereof is indebted to
the Company, nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them. To the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with the
Company, except that employees, officers or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. To the best of the Company's knowledge, no
officer or director or any member of their immediate families is, directly or
indirectly, interested in any material contract with the Company.
2.9 Registration Rights. Except as provided in the Investors'
Rights Agreement, the Company is not obligated to register under the Securities
Act any of its presently outstanding securities or any of its securities that
may subsequently be issued.
2.10 Permits. The Company has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now
being conducted by it, the lack of which could materially and adversely affect
the business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
2.11 Compliance with Other Instruments. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws or in any material respect of any provision of any mortgage,
indenture, agreement, instrument or contract to which it is a party or by which
it is bound or, to the best of its knowledge, of any federal or state judgment,
order, writ, decree, statute, rule or regulation applicable to the Company.
The execution, delivery and performance by the Company of this Agreement, the
Investors' Rights Agreement and any Ancillary Agreement, and the consummation
of the transactions contemplated hereby and thereby will not result in any such
violation or be in material conflict with or constitute, with or without the
passage of time or giving of notice, either a material default under any such
provision or an event that results in the creation of any material lien, charge
or encumbrance upon any assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or
operations, or any of its assets or properties.
2.12 Litigation. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company. The
foregoing includes, without limitation, any
6.
<PAGE> 10
action, suit, proceeding, or investigation pending or currently threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, their obligations under
any agreements with prior employers, or negotiations by the Company with
potential backers of, or investors in, the Company or its proposed business.
The Company is not a party to, or to the best of its knowledge, named in any
order, writ, injunction, judgment or decree of any court or government agency
or instrumentality. There is no action, suit or proceeding by the Company
currently pending or that the Company currently intends to initiate.
2.13 Disclosure. The Company has provided each Investor with all
the information reasonably available to it without undue expense that such
Investor has requested for deciding whether to purchase the Series C Preferred
Stock and all information which the Company believes is reasonably necessary to
enable such Investor to make such decision. Neither this Agreement nor any
other written statements or certificates made or delivered in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading.
2.14 Offering. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Series C Preferred Stock as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.15 Title to Property and Assets; Leases. Except (a) as reflected
in the Financial Statements (as defined below), (b) for liens for current taxes
not yet delinquent, (c) for liens imposed by law and incurred in the ordinary
course of business for obligations not past due to carriers, warehousemen,
laborers, materialmen and the like, (d) for liens in respect of pledges or
deposits under workers' compensation laws or similar legislation, or (e) for
minor defects in title, none of which, individually or in the aggregate
materially interferes with the use of such property, the Company owns its
property and assets free and clear of all mortgages, liens, claims and
encumbrances. With respect to the property and assets it leases, the Company
is in compliance with such leases and, to the best of its knowledge, holds a
valid leasehold interest free of any liens, claims or encumbrances, subject to
clauses (a)-(e) above.
2.16 Financial Statements. The Company has delivered to each
Investor its unaudited financial statements (balance sheet and profit and loss
statement, statement of stockholders' equity and statement of changes in
financial position including notes thereto) at December 31, 1994 and for the
fiscal year then ended and its unaudited financial statements (balance sheet
and profit and loss statement including notes thereto) as at and for the
six-month period ended June 30, 1995 (the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated and with each other, except that the Financial Statements may not
contain all footnotes required by generally accepted accounting principles.
7.
<PAGE> 11
The Financial Statements fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to June 30, 1995 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
Except as disclosed in the Financial Statements, the Company is not a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.
The Company maintains and will continue to maintain a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.
2.17 Changes. To the best of the Company's knowledge, since June
30, 1995, there has not been any event or condition of any type that has
materially and adversely affected the business, properties, prospects or
financial condition of the Company.
2.18 Patents and Trademarks. To the best of its knowledge, the
Company owns or possesses sufficient legal rights to all patents, trademarks,
servicemarks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes necessary for its business as now conducted
and as proposed to be conducted without any conflict with or infringement of
the rights of others. The Schedule of Exceptions contains a complete list of
patents and pending patent applications of the Company. Except for agreements
with its own employees or consultants, substantially in the form referenced in
paragraph 2.21 below, there are no outstanding options, licenses or agreements
of any kind relating to the foregoing, nor is the Company bound by or a party
to any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights of any other person or entity. The Company is not
aware that any of it employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative agency,
that would interfere with the use of such employee's best efforts to promote
the interests of the Company or that would conflict with the Company's business
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of
the Company, nor the conduct of the Company's business as proposed, will, to
the best of the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company.
8.
<PAGE> 12
2.19 Manufacturing and Marketing Rights. The Company has not
granted rights to manufacture, produce, assemble, license, market or sell its
products to any other person and is not bound by any agreement that affects the
Company's exclusive right to develop, manufacture, assemble, distribute, market
or sell its products.
2.20 Employees; Employee Compensation. To the best of the
knowledge of the Company, there is no strike or labor dispute or union
organization activities pending or threatened between it and its employees.
None of the Company's employees belongs to any union or collective bargaining
unit. To the best of its knowledge, the Company has complied in all material
respects with all applicable state and federal equal employment opportunity and
other laws related to employment. To the best of the Company's knowledge, no
employee of the Company is or will be in violation of any judgment, decree or
order, or any term of any employment contract, patent disclosure agreement or
other contract or agreement relating to the relationship of any such employee
with the Company or any other party because of the nature of the business
conducted or to be conducted by the Company or to the utilization by the
employee of his best efforts with respect to such business. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the
will of the Company.
2.21 Proprietary Information and Inventions Agreements. Each
employee and officer of the Company has executed a Proprietary Information and
Inventions Agreement substantially in the form or forms that have been
delivered to special counsel for the Investors.
2.22 Tax Returns, Payments and Elections. The Company has filed
all tax returns and reports as required by law. These returns and reports are
true and correct in all material respects. The Company has paid all taxes and
other assessments due, except those contested by it in good faith. The
provision for taxes of the Company as shown in the Financial Statements is
adequate for taxes due or accrued as of the date thereof. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to
be treated as an S corporation or a collapsible corporation pursuant to Section
341(f) of Section 1362(a) of the Code, nor has it made any other elections
pursuant to the Code (other than elections which relate solely to methods of
accounting, depreciation or amortization) which would have a material effect on
the business, properties, prospects or financial condition of the Company. The
Company has never had any tax deficiency proposed or assessed against it and
has not executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. None of the Company's federal
income tax returns and none of its state income or franchise tax or sales or
use tax returns has ever been audited by governmental authorities. Since the
date of the Financial Statements, the Company has made adequate provisions on
its books of account for all taxes, assessments and governmental charges with
respect to its business, properties and operations for such period. The
Company has withheld
9.
<PAGE> 13
or collected from each payment made to each of its employees, the amount of all
taxes (including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositaries.
2.23 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, in amounts customary for
companies similarly situated. The Company has in full force and effect term
life insurance, payable to the Company, on the life of Robert A. Curtis in the
amount of $1,000,000.
2.24 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
2.25 Minute Books. The copy of the minute books of the Company
provided to the Investor's special counsel contain minutes of all meetings of
directors and stockholders and all actions by written consent without a meeting
by the directors and stockholders since the time of incorporation and reflect
all actions by the directors (and any committee of directors) and stockholders
with respect to all transactions referred to in such minutes accurately in all
material respects.
2.26 Real Property Holding Corporation. The Company is not a real
property holding corporation within the meaning of the Internal Revenue Code
Section 897(c)(2) and any regulations promulgated thereunder.
2.27 Small Business Concern. The Company, together with its
"affiliates" (as that term is defined in Section 121.401 of Title 13 of the
Code of Federal Regulations), is a "small business concern" within the meaning
of the Small Business Investment Act of 1958, as amended, and the regulations
thereunder, including Section 121.802(a)(2) of Title 13 of the Code of Federal
Regulations. The information set forth in the documents provided to the
Investors pursuant to Section 4.6 below is accurate and complete.
2.28 Qualified Small Business. The Company represents and warrants
to the Investors that, to the best of its knowledge, the shares of Series C
Preferred Stock offered hereby should qualify as "Qualified Small Business
Stock" as defined in Section 1202(c) of the Internal Revenue Code of 1986, as
amended (the "Code") as of the date hereof. The Company will use reasonable
efforts to comply with the reporting and recordkeeping requirements of Section
1202 of the Code and any regulations promulgated thereunder, and agrees not to
repurchase any stock of the Company if such repurchase would cause such shares
not to so qualify as "Qualified Small Business Stock."
3. Representations and Warranties of the Investors. Each Investor hereby
represents and warrants that:
10.
<PAGE> 14
3.1 Authorization. Each Investor represents that it has full
power and authority to enter into this Agreement and that this Agreement
constitutes a valid and legally binding obligation of such Investor.
3.2 Purchase Entirely for Own Account. This Agreement is made
with each Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series C Preferred Stock to be purchased by such
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, each Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.
3.3 Reliance Upon Investors' Representations. Each Investor
understands that the Series C Preferred Stock is not, and any Common Stock
acquired on conversion thereof at the time of issuance may not be, registered
under the Securities Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to section 4(2) thereof, and that the
Company's reliance on such exemption is predicated on the Investors'
representations set forth herein. Each Investor realizes that the basis for
the exemption may not be present if, notwithstanding such representations, the
Investor has in mind merely acquiring shares of the Stock for a fixed or
determinable period in the future, or for a market rise, or for sale if the
market does not rise. No Investor has any such intention.
3.4 Receipt of Information. Each Investor represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series C Preferred
Stock and the business, properties, prospects and financial condition of the
Company and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to it or
to which it had access. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.
3.5 Investment Experience. Each Investor represents that it is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Series C Preferred Stock. If other than an
individual, Investor also represents it has not been organized for the purpose
of acquiring the Series C Preferred Stock.
11.
<PAGE> 15
3.6 Accredited Investor. Each Investor as to itself severally and
not jointly further represents to the Company that except as otherwise
disclosed to the Company, in writing, prior to its execution hereof:
3.6.1 such Investor is an "Accredited Investor" (as
defined in the rules and regulations promulgated under the Securities
Act); or
3.6.2 The capital contribution of the Investor does
not exceed 10% of the Investor's net worth or, in the case of an individual,
joint net worth with that person's spouse.
3.7 Restricted Securities. Each Investor understands that the
Securities may not be sold, transferred or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in
the absence of an effective registration statement covering the Securities or
an available exemption from registration under the Securities Act, the
Securities must be held indefinitely. In particular, each Investor is aware
that the Securities may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of that Rule are met. Among the
conditions for use of Rule 144 is the availability of current information to
the public about the Company. Such information is not now available and the
Company has no present plans to make such information available.
3.8 Legends. To the extent applicable, each certificate or other
document evidencing any of the Series C Preferred Stock or any Common Stock
issued upon conversion thereof shall be endorsed with the legends set forth
below, and each Investor covenants that, except to the extent such restrictions
are waived by the Company, such Investor shall not transfer the shares
represented by any such certificate without complying with the restrictions on
transfer described in the legends endorsed on such certificate:
3.8.1 The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
3.8.2 In the case of an Investor who is not a citizen or
resident of the United States or Canada, or any state, territory or possession
thereof, including but not limited to any
12.
<PAGE> 16
estate of any such person, or any corporation, partnership, trust or other
entity created or existing under the laws thereof, or any entity controlled or
owned by any of the foregoing (a "U.S. Person") and is not an Accredited
Investor:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF PRIOR TO ONE YEAR FROM
THE DATE OF THE CLOSING AT WHICH SUCH SHARES WERE PURCHASED,
WITHIN THE UNITED STATES, CANADA, THEIR TERRITORIES AND
POSSESSIONS OR ANY AREA SUBJECT TO THEIR JURISDICTION OR TO
ANY CITIZEN OR RESIDENT OF THE UNITED STATES OR CANADA, OR ANY
STATE, TERRITORY OR POSSESSION THEREOF, INCLUDING ANY ESTATE
OF SUCH PERSON OR ANY CORPORATION, PARTNERSHIP, TRUST OR OTHER
ENTITY CREATED OR EXISTING UNDER THE LAWS THEREOF, AND
THEREAFTER MAY NOT BE SO TRANSFERRED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE
144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
3.9 Public Sale. Each Investor agrees not to make, without the
prior written consent of the Company, any public offering or sale of the
Securities, although permitted to do so pursuant to Rule 144(k) promulgated
under the Securities Act, until the earlier of (i) the date on which the
Company effects its initial registered public offering pursuant to the
Securities Act or (ii) the date on which it becomes a registered company
pursuant to section 12(g) of the Securities Exchange Act of 1934 or (iii) five
years after the Closing of the sale of such Securities to Investor by the
Company.
3.10 Non-U.S. Person. If Investor is not a U.S. Person, such
Investor hereby represents that it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to
subscribe for the shares of Series C Preferred Stock offered hereunder or any
use of this Agreement, including (i) the legal requirements within its
jurisdiction for the purchase of such shares, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents which may need to be obtained and (iv) the income tax and other tax
consequences, if any, which may be relevant to the purchase, holding,
redemption, sale or transfer of the Interest. Such Investor's subscription and
payment for, and its continued beneficial ownership of the shares of Series C
Preferred
13.
<PAGE> 17
Stock offered hereunder will not violate any applicable securities or other
laws of its jurisdiction.
4. Covenants of the Company.
4.1 Covenants. Prior to the Initial Closing, the Company shall:
4.1.1 not effect any change in management (at the level of
vice president and above), except that the Company may add a Vice President of
Chemistry acceptable to holders of a majority of the Series C Preferred Stock
to be purchased hereunder; or
4.1.2 have confirmed that there is not in place any
acceleration of vesting of stock options or waiver by the Company of repurchase
rights with respect to stock beneficially held by an employee or consultant of
the Company, each of which would occur in the event of a sale of all or
substantially all of the assets of the Company, a merger of the Company with or
into another entity or a liquidation of the Company.
4.2 Continuing Covenants. So long as any shares of Preferred
Stock are outstanding, the Company shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of a
majority of the shares of Preferred Stock then outstanding:
4.2.1 change the authorized number of directors to be other
than between five (5) and nine (9); or
4.2.2 put into place or effect any acceleration of vesting
of stock options or waiver of repurchase rights with respect to stock
beneficially held by an employee or consultant of the Company, each in the
event of a sale of all or substantially all of the assets of the Company, a
merger of the Company with or into another entity or a liquidation of the
Company.
5. Conditions of Investor's Obligations at Closings. The obligations of
each Investor under Section 1.1(b) or Section 1.4 of this Agreement are subject
to the fulfillment on or before a Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2 Performance. The Company shall have performed and complied
with all agreements, obligations, covenants and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
14.
<PAGE> 18
5.3 Compliance Certificate. The President of the Company shall
deliver to each Investor at the Closing a certificate certifying that the
conditions specified in paragraphs 5.1, 5.2, 5.4, 5.6, 5.7, 5.8, 5.10, 5.11,
5.12, 5.13 and 5.14 have been fulfilled.
5.4 Qualifications. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Series C Preferred Stock pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
5.6 Small Business Concern Documents. The Company shall have
executed and delivered to each Investor who requests them, a Size Status
Declaration on SBA Form 480 and an Assurance of Compliance on SBA Form 652, and
shall have provided to each Investor who so requests information necessary for
the preparation of a Portfolio Financing Report on SBA Form 1031.
5.7 Bylaws. Article III, Section 2 of the Bylaws of the Company
shall provide that the authorized number of directors of the Company shall be
between five (5) and nine (9), with the number currently set at six (6). The
range of directors shall not be changed without consent of holders of a
majority of the Preferred Stock.
5.8 Board of Directors. The directors of the Company shall be
Mr. Lamond and Drs. Bick, Chambon, Curtis, Myers and Royston.
5.9 Opinion of Company Counsel. Each Investor shall have received
from Brobeck, Phleger & Harrison, counsel for the Company, an opinion, dated
the date of the Closing, in form and substance satisfactory to special counsel
to the Investors.
5.10 Investors' Rights Agreement. The Company and each Investor
shall have entered into the Investors' Rights Agreement in the form attached as
Exhibit B.
5.11 Co-Sale Agreements. Robert Curtis, Peter Myers, Steve Teig,
Sydney Brenner, Kim Janda, Chi-Huey Wong and Dale Boger (collectively, the
"Founders") shall each have entered into a Co-Sale Agreement in the form
attached hereto as Exhibit D.
5.12 No Change in Management. The Company shall have confirmed
that there shall have been no change in management (at the level of vice
president and above) prior to the Initial Closing, except that the Company may
have added a Vice President of Chemistry acceptable to a majority in interest
of the Investors.
15.
<PAGE> 19
5.13 No Acceleration of Vesting. The Company shall have confirmed
that there is not in place, as of the Closing, any acceleration of vesting of
stock options or waiver of repurchase rights with respect to stock beneficially
held by an employee or consultant of the Company, each in the event of a sale
of all or substantially all of the assets of the Company, a merger of the
Company with or into another entity or a liquidation of the Company.
5.14 Filing of Restated Articles. The Company shall adopt and file
with the Secretary of State of California the Restated Articles, and such
Restated Articles shall have been accepted for filing by the Secretary of State
of the California.
6. Conditions of the Company's Obligations at Closings. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by
that Investor:
6.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
6.2 Qualifications. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Series C Preferred Stock pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
6.3 Co-Sale Agreements. The Founders shall each have entered
into a Co-Sale Agreement in the form attached hereto as Exhibit D.
7. Miscellaneous.
7.1 Entire Agreement. This Agreement and the documents referred
to herein constitute the entire agreement among the parties and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
7.2 Survival of Warranties. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
7.3 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
permitted transferees of any shares of Series C Preferred Stock sold hereunder
or any Common Stock issued upon conversion thereof). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies,
16.
<PAGE> 20
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
7.4 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
7.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.7 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified by hand or
professional courier service or five days after deposit with the United States
Post Office, by registered or certified mail, postage prepaid and addressed to
the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.
7.8 Finder's Fees. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction.
Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders'
fee (and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
7.9 Expenses. Irrespective of whether a Closing is effected, the
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Initial Closing is effected, the Company shall, at the Initial Closing,
reimburse the reasonable fees of special counsel for the Investors which are
anticipated to be approximately $20,000 and shall, upon receipt of a bill
therefor, reimburse the out-of-pocket expenses of such counsel incurred in
connection with the First Closing. If the Second Closing is effected, the
Company shall, at the Second Closing, reimburse the reasonable fees of special
counsel for the Investors which are anticipated to be approximately
17.
<PAGE> 21
$3,500 and shall, upon receipt of a bill therefor, reimburse the reasonable
out-of-pocket expenses of such counsel incurred in connection with the Second
Closing.
7.10 Attorneys Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Investors'
Rights Agreement, or the Restated Articles, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
7.11 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
more than 50% of the Common Stock (that has not been sold to the public) issued
or issuable upon conversion of the Series C Preferred Stock. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), each
future holder of all such securities and the Company.
7.12 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
7.13 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS
EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
7.14 Exculpation Among Investors. Each Investor acknowledges that
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Investor agrees that no Investor nor the respective
controlling persons, officers, directors, partners, agents or employees of any
Investor shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Series C Preferred
Stock (and Common Stock issued upon conversion thereof).
18.
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By: /s/ Robert A. Curtis
-----------------------------
Robert A. Curtis, President
INVESTORS:
SPROUT CAPITAL VII, L.P.
-------------------------------------
NAME OF INVESTOR
By: DLJ Capital Corporation
Managing General Partner
By: /s/ Philippe Chambon
-----------------------------
Philippe Chambon, M.D., Ph. D.
Attorney-In-Fact
Address:3000 Sand Hill Road, 4-270
-----------------------------
Menlo Park, CA 94025
-----------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
----------------------------------
Robert A. Curtis, President
INVESTORS:
DLJ CAPITAL CORPORATION
-------------------------------------
NAME OF INVESTOR
By: /s/ Philippe Chambon, M.D., Ph. D
---------------------------------
Attorney-In-Fact
Address: 3000 Sand Hill Road, 4-270
----------------------------
Menlo Park, CA 94025
----------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
-------------------------------------
Robert A. Curtis, President
INVESTORS:
SOFINNOVA VENTURES III L.P.
By: /s/ Alix Marduel, M.D.
------------------------------------
Alix Marduel, M.D.
General Partner
Sofinnova Management L.P.
Address: One Market Plaze, Steuart Tower
-------------------------------
Suite 2630
-------------------------------
San Francisco, CA 94105
-------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
-------------------------------------
Robert A. Curtis, President
INVESTORS:
SINGAPORE BIO-INNOVATIONS PTE LTD
----------------------------------------
NAME OF INVESTOR
By: /s/ Yong-Sea Teoh
------------------------------------
Title: Director & General Manager
---------------------------------
Address:250 North Bridge Road #24-00
--------------------------------
Raffles City Tower
--------------------------------
Singapore 0617
--------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
--------------------------------------
Robert A. Curtis, President
INVESTORS:
SEQUOIA CAPITAL VI
SEQUOIA TECHNOLOGY PARTNERS VI
SEQUOIA XXIV
-----------------------------------------
NAME OF INVESTOR
By: /S/ Peter Bick
--------------------------------------
Title:
----------------------------------
Address:
---------------------------------
---------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
--------------------------------------
Robert A. Curtis, President
INVESTORS:
-----------------------------------------
NAME OF INVESTOR
By: /s/ Michael S. Grossman
-------------------------------------
Title: Owner
----------------------------------
Address:
---------------------------------
---------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
--------------------------------------
Robert A. Curtis, President
INVESTORS:
STEVEN M. LASH
-----------------------------------------
NAME OF INVESTOR
By:/s/ Steven M. Lash
--------------------------------------
Title:
----------------------------------
Address: 13342 Mira Loma Ct.
--------------------------------
Poway, CA 92064
--------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
---------------------------------------------------
Robert A. Curtis, President
INVESTORS:
First Interstate Bank of California Trustee for SK
International Securities Corporation 401(k) Profit
Sharing Plan em Stephen J. Kandel TR#508263200
----------------------------------------------
NAME OF INVESTOR
By: /s/ Mary Jo Topp 8/16/95
--------------------------------------------------
Title: Assistant Vice President/Account Executive
-----------------------------------------------
Address: Attn Mary Jo Topp
--------------------------------------------
4365 Executive Drive, 17th Floor
--------------------------------------------
San Diego, Ca 92121
--------------------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 30
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
-----------------------------------
Robert A. Curtis, President
INVESTORS:
Byron T. Franzen
--------------------------------------
NAME OF INVESTOR
By: /s/ Byron T. Franzen
----------------------------------
Title:
-------------------------------
Address: 610 C Street, N.E.
-----------------------------
Washington, D.C. 20002
-----------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
--------------------------------------
Robert A. Curtis, President
INVESTORS:
DLJSC FBO Byron T. Franzen
-----------------------------------------
NAME OF INVESTOR
By:/s/ Belinda Faulkner for DLJSC
--------------------------------------
Title: Custodian
----------------------------------
Address:One Pershing Plaza
---------------------------------
Jersey City, NJ 07399
---------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 32
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
-------------------------------------
Robert A. Curtis, President
INVESTORS:
M.L. Lawrence Revocable Trust
----------------------------------------
NAME OF INVESTOR
By: /s/ Rebecca Wood
------------------------------------
Title: Trustee
---------------------------------
Address: Corporate Office
-------------------------------
1500 Orange Avenue
-------------------------------
Coronado, CA 92118
-------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
------------------------------------------
Robert A. Curtis, President
INVESTORS:
Farley Inc.
---------------------------------------------
NAME OF INVESTOR
By: /s/ Carl C. Shil
-----------------------------------------
Title: Vice President
--------------------------------------
Address: 233 South Wacker Drive, Suite 5000
------------------------------------
Chicago, IL 60606
------------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
--------------------------------------------------------
Robert A. Curtis, President
INVESTORS:
Sorrento Ventures II, L.P.
-----------------------------------------------------------
NAME OF INVESTOR
By: /s/ Robert M. Jaffe
-------------------------------------------------------
President, Sorrento Associates, Inc.
General Partner, Sorrento Equity Partners L.P.
Title: General Partner, Sorrento Ventures II L.P.
----------------------------------------------------
Address: 4225 Executive Square, Suite 1450
--------------------------------------------------
San Diego, CA 92037
--------------------------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
--------------------------------------------------------
Robert A. Curtis, President
INVESTORS:
Sorrento Growth Partners I, L.P.
-----------------------------------------------------------
NAME OF INVESTOR
By: /s/ Robert M. Jaffe
-------------------------------------------------------
President, Sorrento Growth, Inc.
General Partner, Sorrento Growth Partners, L.P.
Title: General Partner, Sorrento Growth Partners I, L.P.
----------------------------------------------------
Address: 4225 Executive Square, Suite 1450
--------------------------------------------------
San Diego, CA 92037
--------------------------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 36
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
--------------------------------------
Robert A. Curtis, President
INVESTORS:
Comdisco, Inc.
-----------------------------------------
NAME OF INVESTOR
By: /s/ Jill C. Hanses
-------------------------------------
Title: Assistant Vice President
----------------------------------
Address: 6111 N. River Rd.
-------------------------------
Rosemont, IL 60018
-------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
---------------------------------------------
Robert A. Curtis, President
INVESTORS:
Brinson Venture Capital Fund III, L.P. by its
general partner Brinson Partners, Inc.
-----------------------------------------------
NAME OF INVESTOR
By: /s/ Terry Gould
-------------------------------------------
Title: Terry Gould, Partner
----------------------------------------
Address: Brinson Partners, Inc.
--------------------------------------
209 S. LaSalle Street, Suite 114
--------------------------------------
Chicago, IL 60604-1295
--------------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 38
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
--------------------------------------------
Robert A. Curtis, President
INVESTORS:
Brinson Trust Company as Trustee of the
Brinson MAP Venture Capital Fund III
-----------------------------------------------
NAME OF INVESTOR
By: /s/ Terry Gould
-------------------------------------------
Title: Terry Gould, Asst. Trust Officer
----------------------------------------
Address: c/o Brinson Partners, Inc.
--------------------------------------
209 S. LaSalle Street, Suite 114
--------------------------------------
Chicago, IL 60604-1295
--------------------------------------
</TABLE>
[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 39
<TABLE>
<CAPTION>
SCHEDULE OF PURCHASERS
FIRST CLOSING SECOND CLOSING
SERIES C NUMBER CONVERSION NUMBER OF
INVESTOR WARRANTS OF SHARES OF NOTES CASH SHARES
-------- -------- --------- -------- ---- ------
<S> <C> <C> <C> <C> <C>
Sprout Capital VII, L.P. -0- 3,126,821 -0- $1,938,629.02 1,340,066
DLJ Capital Corporation -0- 260,276 -0- $161,371.12 111,547
Sofinnova Ventures III, L.P. -0- 1,129,033 -0- $700,000.46 483,871
Singapore Bio-Innovations Ptd, Ltd -0- 564,517 -0- $350,000.54 241,936
Sequoia Capital VI 66,450 1,335,646 $381,675.83 $446,424.69 572,420
Sequoia Technology Partners VI 3,652 73,388 $20,971.20 $24,529.36 31,452
Sequoia XXIV 2,921 58,710 $16,776.96 $19,623.24 25,162
PaineWebber Incorporated as
Custodian of the Michael Grossman
Rollover IRA 3,312 37,218 $23,075.16 -0- -0-
Steven M. Lash 1,440 16,185 $10,034.70 -0- -0-
First Interstate Bank as Trustee
for SK International Securities
Corp. 401(k)PS em Stephen J. Kandel 7,199 80,874 $50,141.88 -0- -0-
Byron T. Franzen -0- 56,452 -0- $35,000.24 24,194
IRA FBO Byron T. Franzen -0- 112,904 -0- $70,000.48 48,388
M.L. Lawrence Revocable Trust -0- 225,807 -0- $140,000.34 96,775
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE OF PURCHASERS
INVESTOR CASH TOTAL INVESTMENT
-------- ---- ----------------
<S> <C> <C>
Sprout Capital VII, L.P. $830,840.92 $2,769,469.94
DLJ Capital Corporation $69,159.14 $230,530.26
Sofinnova Ventures III, L.P. $300,000.02 $1,000,000.48
Singapore Bio-Innovations Ptd, Ltd $150,000.32 $500,000.86
Sequoia Capital VI $354,900.40 $1,183,000.92
Sequoia Technology Partners VI $19,500.24 $65,000.80
Sequoia XXIV $15,600.44 $52,000.64
PaineWebber Incorporated as
Custodian of the Michael Grossman
Rollover IRA -0- $23,075.16
Steven M. Lash -0- $10,034.70
First Interstate Bank as Trustee
for SK International Securities
Corp. 401(k)PS em Stephen J. Kandel -0- $50,141.88
Byron T. Franzen $15,000.28 $50,000.52
IRA FBO Byron T. Franzen $30,000.56 $100,001.04
M.L. Lawrence Revocable Trust $60,000.50 $200,000.84
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
SCHEDULE OF PURCHASERS
FIRST CLOSING SECOND CLOSING
SERIES C NUMBER CONVERSION NUMBER OF
INVESTOR WARRANTS OF SHARES OF NOTES CASH SHARES
-------- -------- --------- -------- ---- ------
<S> <C> <C> <C> <C> <C>
Farley Inc. -0- 846,775 -0- $525,000.50 362,904
Sorrento Ventures II, L.P. -0- 564,517 -0- $350,000.54 241,936
Sorrento Growth Partners I, L.P. -0- 1,129,033 -0- $700,000.46 483,871
Comdisco, Inc. -0- 169,355 -0- $105,000.10 72,581
Brinson Venture Capital Fund III,
L.P. -0- 1,941,441 -0- $1,203,693.42 832,046
Brinson Trust Company as Trustee
of the Brinson MAP Venture
Capital Fund III -0- 316,624 -0- $196,306.88 135,696
TOTALS: 84,974 12,045,576 $502,675.73 $6,965,581.39 5,104,845
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE OF PURCHASERS
INVESTOR CASH TOTAL INVESTMENT
-------- ---- ----------------
<S> <C> <C>
Farley Inc. $225,000.48 $750,000.98
Sorrento Ventures II, L.P. $150,000.32 $500,000.86
Sorrento Growth Partners I, L.P. $300,000.02 $1,000,000.48
Comdisco, Inc. $45,000.22 $150,000.32
Brinson Venture Capital Fund III, L.P. $515,868.52 $1,719,561.94
Brinson Trust Company as Trustee
of the Brinson MAP Venture
Capital Fund III $84,131.52 $280,438.40
TOTALS: $3,165,003.90 $10,633,261.02
</TABLE>
<PAGE> 41
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE> 42
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF COMBICHEM, INC.,
a California Corporation
The undersigned Robert A. Curtis and Craig S. Andrews hereby
certify that:
ONE: They are the duly elected and acting President and
Secretary, respectively, of said corporation.
TWO: The Articles of Incorporation of said corporation
shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is CombiChem, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
ARTICLE III
A. Classes of Stock. This corporation is authorized to
issue two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the corporation is
authorized to issue is One Hundred Ten Million Four Hundred Eighteen Thousand
Three Hundred Thirty-Four (110,418,334) shares. Sixty Million (60,000,000)
shares shall be Common Stock and Fifty Million Four Hundred Eighteen Thousand
Three Hundred Thirty-Four (50,418,334) shares shall be Preferred Stock. The
Preferred Stock authorized by these Restated Articles of Incorporation shall be
issued by series as set forth herein. The first series of Preferred Stock
shall be designated "Series A Preferred Stock" and shall consist of One Million
(1,000,000) shares. The second series of Preferred Stock shall be designated
"Series B Preferred Stock" and shall consist of Two Million Two Hundred
Twenty-Six Thousand Six Hundred Sixty-Seven (2,226,667) shares. The third
series of Preferred Stock shall be designated "Series C Preferred Stock" and
shall consist of Twenty-One Million (21,000,000) shares. The fourth series of
Preferred Stock shall be designated "Series J Preferred Stock" and shall
consist of Four Hundred Sixty-Five Thousand (465,000) shares. The fifth series
of Preferred Stock shall be designated "Series Z Preferred Stock" and shall
consist of One Million Five Hundred Thousand (1,500,000) shares. The sixth
series of Preferred Stock shall be designated "Series A-1 Preferred Stock" and
shall consist of One Million (1,000,000) shares. The seventh series of
Preferred Stock shall be designated "Series B-1 Preferred Stock" and shall
consist of Two Million Two Hundred Twenty-Six Thousand Six Hundred Sixty-Seven
(2,226,667) shares. The eighth series of
<PAGE> 43
Preferred Stock shall be designated "Series C-1 Preferred Stock" and shall
consist of Twenty-One Million (21,000,000) shares.
B. Rights, Preferences and Restrictions of Preferred
Stock. The Preferred Stock authorized by these Restated Articles of
Incorporation may be issued from time to time in one or more series. The
rights, preferences, privileges and restrictions granted to and imposed on the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series J Preferred Stock, the Series Z Preferred Stock, the Series
A-1 Preferred Stock, the Series B-1 Preferred Stock and the Series C-1
Preferred Stock are as set forth below in this Article III(B). Subject to
compliance with applicable protective voting rights ("Protective Provisions")
which have been or may be granted to the Preferred Stock or any series thereof
in Certificates of Determination or the corporation's Articles of
Incorporation, as amended from time to time, the Board of Directors is also
authorized to increase or decrease the number of shares of any series (other
than the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series A-1 Preferred Stock, the Series B-1 Preferred Stock
and the Series C-1 Preferred Stock), prior or subsequent to the issue of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
1. Dividend Provisions.
(a) The holders of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1
Preferred Stock shall be entitled to receive dividends in any fiscal year, out
of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Series J Preferred Stock or the Common Stock of this
corporation, at the rate of $0.04 per share of Series A Preferred Stock, $0.06
per share of Series B Preferred Stock, $0.0496 per share of Series C Preferred
Stock, $0.04 per share of Series Z Preferred Stock, $0.04 per share of Series
A-1 Preferred Stock, $0.06 per share of Series B-1 Preferred Stock and $0.0496
per share of Series C-1 Preferred Stock (each subject to appropriate
adjustments for stock splits, stock dividends, combinations or other
recapitalizations) per annum, payable quarterly when, as and if declared by the
Board of Directors. Such dividends shall not be cumulative. After full
dividends on the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series Z Preferred Stock, the Series A-1
Preferred Stock, the Series B-1 Preferred Stock and the Series C-1 Preferred
Stock for all past dividend periods and the then current dividend period have
been paid, the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock and
the holders of shares of Series J Preferred Stock and Common Stock shall
participate ratably in any dividends or other distributions (as distributions
are defined below).
2.
<PAGE> 44
(b) For purposes of this subsection 1, unless the
context other requires, "distribution(s)" shall mean the transfer of cash or
property without consideration, whether by way of dividend or otherwise, or the
purchase or redemption of shares of this corporation (other than repurchases of
common stock held by directors, employees or consultants of this corporation
upon termination of their employment or services pursuant to agreements
providing for such repurchase) for cash or property, including any such
transfer, purchase or redemption by a subsidiary of this corporation.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution
or winding up of this corporation, either voluntary or involuntary, subject to
the rights of series of Preferred Stock that may from time to time come into
existence, the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of
this corporation to the holders of Series J Preferred Stock or Common Stock by
reason of their ownership thereof, an amount per share equal to the sum of (i)
$0.50 for each outstanding share of Series A Preferred Stock (the "Original
Series A Issue Price"), (ii) $0.75 for each outstanding share of Series B
Preferred Stock (the "Original Series B Issue Price"), (iii) $0.62 for each
outstanding share of Series C Preferred Stock (the "Original Series C Issue
Price"), (iv) $0.50 for each outstanding share of Series Z Preferred Stock (the
"Original Series Z Issue Price"), (v) $0.50 for each outstanding share of
Series A-1 Preferred Stock (the "Original Series A-1 Issue Price"), (vi) $0.75
for each outstanding share of Series B-1 Preferred Stock (the "Original Series
B-1 Issue Price"), (vii) $0.62 for each outstanding share of Series C-1
Preferred Stock (the "Original Series C-1 Issue Price") and (viii) an amount
equal to declared but unpaid dividends on such share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1
Preferred Stock, respectively. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then, subject to the rights of series
of Preferred Stock that may from time to time come into existence, the entire
assets and funds of the corporation
3.
<PAGE> 45
legally available for distribution shall be distributed (x) first ratably among
the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock in proportion to the aggregate liquidation
preferences of each respective series, and ratably among the holders of that
series in proportion to the amount of such stock owned by each such holder, and
(y) second ratably among the holders of the Series Z Preferred Stock in
proportion to the amount of such stock owned by each such holder.
(b) Upon the completion of the distribution
required by subparagraph (a) of this Section 2 and any other distribution that
may be required with respect to series of Preferred Stock that may from time to
time come into existence, the remaining assets of the corporation available for
distribution to shareholders shall be distributed among the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Common Stock pro rata based
on the number of shares of Common Stock held by each (with each share of
Preferred Stock participating on an "as-converted-into-common-stock" basis).
(c) A consolidation or merger of this corporation
with or into any other corporation or corporations in which fifty percent (50%)
or more of the voting power of the corporation held by the shareholders of the
corporation immediately prior to the merger or consolidation is transferred
(excluding reincorporations of the corporation the sole purpose of which is to
change the state of incorporation), or a sale, conveyance or disposition of all
or substantially all of the assets of this corporation or the effectuation by
the corporation of a transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of the corporation is
transferred, shall be deemed to be a liquidation, dissolution or winding up
within the meaning of this Section 2.
3. Redemption.
(a) At any time after December 31, 1998, but
within forty-five (45) days (the "Redemption Date") after the receipt by this
corporation of a written request from the holders of not less than seventy
percent (70%) of the then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock treated as a single
class, that all of such holders' shares be redeemed, and immediately prior to
the surrender by such holders of the certificates representing such shares,
this corporation shall, to the extent it may lawfully do so, redeem all of the
then outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock and Series C-1 Preferred Stock by paying in cash therefor a sum per share
equal to the Original Series A Issue Price (as adjusted for any stock
dividends, combinations or splits with respect to such share) plus an amount
equal to declared but unpaid dividends on such share for each share of Series A
Preferred Stock, the Original Series B Issue Price (as adjusted for any stock
dividends, combinations or splits with respect to such share) plus an amount
equal to declared but unpaid dividends on such share for each share of Series B
Preferred Stock, the Original Series C Issue Price (as adjusted for any stock
dividends, combinations or splits with
4.
<PAGE> 46
respect to such share) plus an amount equal to declared but unpaid dividends on
such share for each share of Series C Preferred Stock, the Original Series A-1
Issue Price (as adjusted for any stock dividends, combinations or splits with
respect to such share) plus an amount equal to declared but unpaid dividends on
such share for each share of Series A-1 Preferred Stock, the Original Series
B-1 Issue Price (as adjusted for any stock dividends, combinations or splits
with respect to such share) plus an amount equal to declared but unpaid
dividends on such share for each share of Series B-1 Preferred Stock and the
Original Series C-1 Issue Price (as adjusted for any stock dividends,
combinations or splits with respect to such share) plus an amount equal to
declared but unpaid dividends on such share for each share of Series C-1
Preferred Stock (such amounts are hereinafter referred to herein as the
"Redemption Prices").
(b) Not more than fifteen (15) days prior to the
Redemption Date, written notice shall be mailed, first class postage prepaid,
to each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock at the address last
shown on the records of this corporation for such holder, notifying such holder
of the redemption to be effected, specifying the number of shares to be
redeemed from such holder (which shall be all of the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock held
by such holder), the Redemption Date, the Redemption Prices of each of the
respective series to be redeemed from such holder, the place at which payment
may be obtained and calling upon such holder to surrender to this corporation,
in the manner and at the place designated, his, her or its certificate or
certificates representing all of the shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock held by such holder
(the "Redemption Notice"). Except as provided in subsection 3(c) of this
Division B of Article III, on or after the Redemption Date, each holder of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock shall surrender to this corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Prices of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled.
(c) From and after the Redemption Date, unless
there shall have been a default in payment of the Redemption Prices, all rights
of the holders of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock and Series C-1 Preferred Stock as holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock, respectively (except
the right to receive the respective Redemption Prices without interest upon
surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books
of this corporation or be deemed to be outstanding for any purpose whatsoever.
If the funds of the corporation legally available for redemption of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
5.
<PAGE> 47
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock on the Redemption Date are insufficient to redeem the total number of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares
ratably among the holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock in proportion to the Redemption
Prices of the respective series, and ratably among the holders of each series
in proportion to the amount of such stock owned by each such holder.
Notwithstanding anything herein to the contrary, the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock not
redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of
the corporation are legally available for the redemption of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock,
such funds will immediately be used to redeem the balance of the shares which
the corporation has become obliged to redeem on the Redemption Date but which
it has not redeemed.
(d) The shares of Series J Preferred Stock and
Series Z Preferred Stock are not redeemable.
4. Conversion. The holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share and, in the case of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock, on or prior to the fifth
day prior to the Redemption Date, if any, as may have been fixed in the
Redemption Notice, at the office of this corporation or any transfer agent for
such stock, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing (i) the Original Series A Issue Price for
each share of Series A Preferred Stock, (ii) the Original Series B Issue Price
for each share of Series B Preferred Stock, (iii) the Original Series C Issue
Price for each share of Series C Preferred Stock, (iv) the Original Series J
Issue Price for each share of Series J Preferred Stock, (v) the Original Series
Z Issue Price for each share of Series Z Preferred Stock, (vi) the Original
Series A-1 Issue Price for each share of Series A-1 Preferred Stock, (vii) the
Original Series B-1 Issue Price for each share of Series B-1 Preferred Stock
and (viii) the Original Series C-1 Issue Price for each share of Series C-1
Preferred Stock in each case by the Conversion Price at the time in effect for
such share. The initial Conversion Price per share for shares of Series A
Preferred Stock shall be the Original Series A Issue Price, for
6.
<PAGE> 48
shares of Series B Preferred Stock shall be the Original Series B Issue Price,
for shares of Series C Preferred Stock shall be the Original Series C Issue
Price, for shares of Series J Preferred Stock shall be the Original Series J
Issue Price, for shares of Series Z Preferred Stock shall be the Original
Series Z Issue Price, for shares of Series A-1 Preferred Stock shall be the
Original Series A-1 Issue Price, for shares of Series B-1 Preferred Stock shall
be the Original Series B-1 Issue Price and for shares of Series C-1 Preferred
Stock shall be the Original Series C-1 Issue Price; provided, however, that the
Conversion Price for the Series A Preferred Stock, the Series B Preferred
Stock, Series C Preferred Stock and the Series Z Preferred Stock shall each be
subject to adjustment as set forth in subsections 4(d) and 4(e) of this
Division B of Article III and the Conversion Price for the Series J Preferred
Stock, the Series A-1 Preferred Stock, the Series B-1 Preferred Stock and the
Series C-1 Preferred Stock shall be subject to adjustment as set forth in
subsection 4(e) of this Division B of Article III.
(b) Automatic Conversion. Each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such series immediately upon the earlier of (i) the corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement on Form S-1 under the Securities Act of
1933, as amended, the public offering price of which (exclusive of underwriting
discounts, commissions and expenses) is not less than $4.00 per share (adjusted
to reflect subsequent stock dividends, stock splits or recapitalizations) and
$12,000,000 in the aggregate or (ii) the date specified by written consent or
agreement of the holders of at least seventy percent (70%) of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock voting together as a single class.
(c) Mechanics of Conversion. Before any holder
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock shall be
entitled to convert the same into shares of Common Stock, he, she or it shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of this corporation or of any transfer agent for such stock and shall
give written notice to this corporation at its principal corporate office of
the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to each such holder, or to the nominee or nominees of
each such holder, (i) a certificate or certificates for the number of shares of
Common Stock to which each such holder shall be entitled as aforesaid and (ii)
a cash payment of all accrued but unpaid dividends on the converted shares as
of the date of conversion. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock to be
converted, and the
7.
<PAGE> 49
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is
in connection with an underwritten offering of securities registered pursuant
to the Securities Act of 1933, as amended, the conversion may, at the option of
any holder tendering Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series
A-1 Preferred Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock
for conversion, be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and/or Series C-1 Preferred Stock shall not be deemed to have
converted such Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock until
immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Series A,
Series B, Series C and Series Z Preferred Stock for Certain Dilutive Issuances.
The Conversion Price of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series Z Preferred Stock shall be subject to
adjustment from time to time as follows:
(i)(A) If the corporation shall issue,
after the date upon which any shares of Series C Preferred Stock were first
issued (the "Purchase Date"), any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for such series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for such series in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including, without limitation,
the number of shares of Common Stock issuable upon the conversion of the
Preferred Stock) plus the number of shares of Common Stock that the aggregate
consideration received by the corporation for such issuance would purchase at
such Conversion Price, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance
(including, without limitation, the number of shares of Common Stock issuable
upon the conversion of the Preferred Stock) plus the number of shares of such
Additional Stock.
(B) No adjustment of the Conversion
Price for the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series Z Preferred Stock shall be made in an amount less
than one cent per share, provided that any adjustments which are not required
to be made by reason of this sentence shall be carried forward and shall be
either taken into account in any subsequent adjustment made prior to three (3)
years from the date of the event giving rise to the adjustment being carried
forward, or shall be made at the end of three (3) years from the date of the
event giving rise to the adjustment being carried forward. Except to the
limited extent provided for in subsections 4(d)(i)(E)(3)
8.
<PAGE> 50
and 4(d)(i)(E)(4) of this Division B of Article III, no adjustment of such
Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether
before, on or after the applicable Purchase Date) of options or warrants to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options or warrants to
purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
subsection 4(d)(i) and subsection 4(d)(ii) of this Division B of Article III:
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability, including
without limitation, the passage of time, but without taking
into account potential antidilution adjustments) of such
options or warrants to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time
such options, warrants or rights were issued and for a
consideration equal to the consideration (determined in the
manner provided in subsections 4(d)(i)(C) and (d)(i)(D) of
this Division B of Article III), if any, received by the
corporation upon the issuance of such options, warrants or
rights plus the minimum exercise price provided in such
options, warrants or rights (without taking into account
potential antidilution adjustments) for the Common Stock
covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in
exchange (assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such
convertible or exchangeable securities or upon the exercise of
options or warrants to purchase or rights to subscribe for
such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such
options, warrants or rights were issued and for a
consideration equal to the consideration, if any, received by
the corporation for any such securities and related options,
warrants or rights
9.
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(excluding any cash received on account of accrued interest or
accrued dividends), plus the minimum additional consideration,
if any, to be received by the corporation (without taking into
account potential antidilution adjustments) upon the conversion
or exchange of such securities or the exercise of any related
options, warrants or rights (the consideration in each case to
be determined in the manner provided in subsections 4(d)(i)(C)
and (d)(i)(D) of this Division B of Article III).
(3) In the event of any change in
the number of shares of Common Stock deliverable or in the
consideration payable to this corporation upon exercise of
such options, warrants or rights or upon conversion of or in
exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the
Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series Z Preferred Stock, to the extent in
any way affected by or computed using such options, warrants,
rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration
upon the exercise of any such options, warrants or rights or
the conversion or exchange of such securities.
(4) Upon the expiration of any such
options, warrants or rights, the termination of any such
rights to convert or exchange or the expiration of any
options, warrants or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series Z Preferred Stock, to the extent in any way
affected by or computed using such options, warrants, rights
or securities or options, warrants or rights related to such
securities, shall be recomputed to reflect the issuance of
only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually
issued upon the exercise of such options, warrants or rights,
upon the conversion or exchange of such securities or upon the
exercise of the options, warrants or rights related to such
securities.
(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor
pursuant to subsections 4(d)(i)(E)(1) and (2) of this Division
B of Article III shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in
either subsection 4(d)(i)(E)(3) or (4) of this Division B of
Article III.
(ii) "Additional Stock" shall mean any
shares of Common Stock issued (or deemed to have been issued
pursuant to subsection 4(d)(i)(E) of this Division B of Article
III) by this corporation after the Purchase Date other than:
(A) shares of Common Stock issued upon
conversion of the Preferred Stock; or
10.
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(B) up to 4,892,774 shares of Common
Stock issuable or issued to employees, consultants or
directors of this corporation pursuant to stock option plans
or arrangements approved by the Board of Directors of this
corporation (which, as of the Purchase Date, consisted of
1,472,500 shares of Common Stock issued and outstanding,
50,000 shares of Common Stock reserved for issuance upon
exercise of options outstanding and 3,370,274 shares of Common
Stock reserved for issuance upon exercise of options or grant
of shares to be issued after the Purchase Date); or
(C) Common Stock issued pursuant to a
transaction described in subsection 4(e)(i) of this Division B
of Article III; or
(D) shares of Common Stock or warrants
to purchase shares of Common Stock issued in connection with a
bona fide acquisition of another business, whether by merger,
consolidation or purchase of assets, or bona fide equipment
leasing transactions unanimously approved by the Board of
Directors of this corporation; or
(E) shares of Preferred Stock issued
upon exercise of any options or warrants to purchase the
corporation's Preferred Stock outstanding as of the Purchase
Date.
(e) Conversion Price Adjustments of Preferred
Stock for Certain Splits and Combinations. The Conversion Price of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) In the event the corporation should at
any time or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be increased in
proportion to such increase in the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
11.
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determined from time to time in the manner provided for deemed issuances in
subsection 4(d)(i)(E) of this Division B of Article III.
(ii) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Price for the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of each share of such series
shall be decreased in proportion to such decrease in outstanding shares.
(f) Other Distributions. In the event this
corporation shall declare a distribution payable in securities of other
persons, evidences of indebtedness issued by this corporation or other persons,
assets (excluding cash dividends) or options or rights not referred to in
subsection 4(e)(i) of this Division B of Article III, then, in each such case
for the purpose of this subsection 4(f), the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the corporation into which their shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock are convertible
as of the record date fixed for the determination of the holders of Common
Stock of the corporation entitled to receive such distribution.
(g) Recapitalizations. If at any time or from
time to time there shall be a recapitalization of the Common Stock (other than
a subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2 of this Division B of Article III)
provision shall be made so that the holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock and Series C-1 Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock, respectively, the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of
the provisions of this Section 4 with respect to the rights of the holders of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1
12.
<PAGE> 54
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(h) No Impairment. Unless approved in accordance
with Sections 6 and 7 of this Division B of Article III, this corporation will
not, by amendment of its Articles of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by this corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 4
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock against impairment.
(i) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock or Series C-1 Preferred Stock and the number of shares of Common Stock to
be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock the holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment
or readjustment of the Conversion Price of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series C-1 Preferred Stock pursuant to this Section 4, this corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series C-1 Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such series of Preferred Stock at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Series A Preferred
13.
<PAGE> 55
Stock, Series B Preferred Stock, Series C Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock.
(j) Notices of Record Date. In the event of any
taking by this corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
this corporation shall mail to each holder of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(k) Reservation of Stock Issuable Upon
Conversion. This corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock and Series C-1 Preferred Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock, in addition to such other remedies as shall be available to each holder
of any of such Preferred Stock, this corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, using its
best efforts to obtain the requisite shareholder approval of any necessary
amendment to these articles.
(l) Notices. Any notice required by the
provisions of this Section 4 to be given to the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock or Series C-1 Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.
(m) Special Mandatory Conversion.
14.
<PAGE> 56
(i) At any time following the Purchase
Date, if (a) the holders of shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock are entitled to exercise the right
of first refusal (the "Right of First Refusal") set forth in Section 2.3 of the
Investors' Rights Agreement dated on or about August 17, 1995, by and between
this corporation and certain investors, as amended from time to time (the
"Rights Agreement"), with respect to an equity financing of the corporation in
an aggregate amount of at least $500,000 (the "Equity Financing"), (b) this
corporation has complied with its notice obligations, or such obligations have
been waived, under the Right of First Refusal with respect to such Equity
Financing and this corporation thereafter proceeds to consummate the Equity
Financing and (c) such holder, including such holder's affiliates
(collectively, a "Non-Participating Holder") does not by exercise of such
holder's Right of First Refusal acquire his, her or its Pro Rata Share (as
defined in Section 2.3 of the Rights Agreement) offered in such Equity
Financing (a "Mandatory Offering"), then all of such Non-Participating Holder's
shares of Series A Preferred Stock, Series B Preferred Stock and/or Series C
Preferred Stock shall automatically and without further action on the part of
such holder be converted effective upon, subject to, and immediately prior to,
the consummation of the Mandatory Offering (the "Mandatory Offering Date") into
an equivalent number of shares of Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock, respectively ("Special
Mandatory Conversion"); provided, however, that no such conversion shall occur
in connection with a particular Equity Financing if, pursuant to the written
request of the Board of Directors and subject to the approval of the holders of
a majority of the outstanding Preferred Stock, such holder agrees in writing to
waive his, her or its Right of First Refusal with respect to such Equity
Financing. Upon conversion pursuant to this subsection 4(m)(i), the shares of
Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock so converted shall be cancelled and not subject to reissuance.
(ii) The holder of any shares of Series A
Preferred Stock, Series B Preferred Stock and/or Series C Preferred Stock
converted pursuant to this subsection 4(m) shall deliver to this corporation
during regular business hours at the office of any transfer agent of the
corporation for the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock or at such other place as may be designated by the
corporation, the certificate or certificates for the shares so converted, duly
endorsed or assigned in blank or to this corporation. As promptly as
practicable thereafter, this corporation shall issue and deliver to such
holder, at the place designated by such holder, a certificate or certificates
for the number of full shares of the Series A-1 Preferred Stock, Series B-1
Preferred Stock and/or Series C-1 Preferred Stock to be issued and such holder
shall be deemed to have become a shareholder of record of such Series A-1
Preferred Stock, Series B-1 Preferred Stock and/or Series C-1 Preferred Stock
on the Mandatory Offering Date unless the transfer books of this corporation
are closed on that date, in which event he, she or it shall be deemed to have
become a shareholder of record of such Series A-1 Preferred Stock, Series B-1
Preferred Stock and/or Series C-1 Preferred Stock on the next succeeding date
on which the transfer books are open.
(iii) In the event that any shares of
Series A-1 Preferred Stock, Series B-1 Preferred Stock and/or Series C-1
Preferred Stock are issued, concurrently with such issuance, this corporation
shall use its best efforts to take all such action as may be
15.
<PAGE> 57
required, including amending its Articles of Incorporation, (a) to cancel all
authorized shares of Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock that remain unissued after such issuance, (b) to
create and reserve for issuance upon Special Mandatory Conversion of any then
outstanding Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock a new series of Preferred Stock equal in number to the number
of shares of Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series
C-1 Preferred Stock so cancelled and designated Series A-2 Preferred Stock,
Series B-2 Preferred Stock and Series C-2 Preferred Stock, with the
designations, powers, preferences and rights and the qualifications,
limitations and restrictions identical to those then applicable to the Series
A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock,
respectively, except that the Conversion Price for such shares of Series A-2
Preferred Stock, Series B-2 Preferred Stock and Series C-2 Preferred Stock once
initially issued shall be the Series A Conversion Price, the Series B
Conversion Price and the Series C Conversion Price, respectively, in effect
immediately prior to such issuance and (c) to amend the provisions of this
subsection 4(m) to provide that any subsequent Special Mandatory Conversion
will be into shares of Series A-2 Preferred Stock, Series B-2 Preferred Stock
and Series C-2 Preferred Stock rather than Series A-1 Preferred Stock, Series
B-1 Preferred Stock or Series C-1 Preferred Stock, respectively. This
corporation shall take the same actions with respect to the Series A-2
Preferred Stock, Series B-2 Preferred Stock and Series C-2 Preferred Stock and
each subsequently authorized series of Preferred Stock upon initial issuance of
shares of the last such series to be authorized. The right to receive any
dividend declared but unpaid at the time of conversion on any shares of
Preferred Stock converted pursuant to the provisions of this subsection 4(m)
shall accrue to the benefit of the new shares of Preferred Stock issued upon
conversion thereof.
(iv) A copy of the Rights Agreement is on
file at the offices of this corporation and will be made available upon request
and without charge.
5. Voting Rights. The holder of each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock shall have the right to one
vote for each share of Common Stock into which such Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock or Series C-1 Preferred Stock could then be converted, and with respect
to such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one- half being
rounded upward).
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6. Protective Provisions for Series A, Series B, Series
C, Series Z, Series A-1, Series B-1 and Series C-1 Preferred Stock. So long as
any shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock or Series C-1 Preferred Stock are outstanding, this
corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least seventy percent (70%)
of the then outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock, voting
together as a single class:
(a) alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock or Series C-1 Preferred Stock so as to affect
materially or adversely the shares; or
(b) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series C-1 Preferred Stock; or
(c) reclassify any shares of Common Stock or
Preferred Stock to give those shares a preference over, or to make those shares
on a parity with, the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock or Series C-1 Preferred Stock with respect to
dividends, redemption or voting rights or upon liquidation; or
(d) redeem, purchase or otherwise acquire (or pay
into or set aside for a sinking fund for such purpose) any share or shares of
Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Company or any
subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares at cost or upon the occurrence of certain events, such
as the termination of employment.
7. Protective Provisions for Series C and Series C-1
Preferred Stock. So long as any shares of Series C Preferred Stock or Series
C-1 Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of a majority of the then outstanding shares of Series C Preferred
Stock and Series C-1 Preferred Stock, voting together as a single class:
(a) amend the corporation's Articles of
Incorporation to alter or change the rights, preferences or privileges of the
shares of Series C Preferred Stock or Series C-1 Preferred Stock so as to
affect materially or adversely the shares; or
17.
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(b) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Series C
Preferred Stock or Series C-1 Preferred Stock (other than pursuant to Article
III(B)(4)(m) hereof); or
(c) authorize or issue, or obligate itself to
issue, any other equity security, including any other security convertible into
or exercisable for any equity security, having a preference over, or being on a
parity with, the Series C Preferred Stock or Series C-1 Preferred Stock with
respect to dividends, redemption or voting rights or upon liquidation; or
(d) reclassify any shares of Common Stock to give
those shares a preference over, or to make those shares on a parity with, the
Series C Preferred Stock or Series C-1 Preferred Stock with respect to
dividends, redemption or voting rights or upon liquidation; or
(e) pay dividends upon or redeem, purchase or
otherwise acquire (or pay into or set aside for a sinking fund for such
purpose) any share or shares of Preferred Stock or Common Stock other than
shares of Series C Preferred Stock or Series C-1 Preferred Stock; provided,
however, that this restriction shall not apply to (i) the repurchase of shares
of Common Stock from employees, officers, directors, consultants or other
persons performing services for the Company or any subsidiary pursuant to
agreements under which the Company has the option to repurchase such shares at
cost or upon the occurrence of certain events, such as the termination of
employment, or (ii) the redemption of any share or shares of Preferred Stock in
accordance with the provisions of Section 3 of this Division B of Article III;
or
(f) sell, convey or otherwise dispose of or
encumber all or substantially all of its assets or business or merge into or
consolidate with any other entity (other than a wholly-owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the corporation is
disposed of; or
(g) increase the authorized number of directors
of the corporation to more than eight (8).
8. Status of Redeemed or Converted Stock. In the event
(a) any shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series C-1 Preferred Stock shall be redeemed pursuant to Section 3 of this
Division B of Article III or (b) any shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series C-1 Preferred Stock shall be converted pursuant to Section 4 of this
Division B of Article III, the shares so redeemed or converted shall be
cancelled, together with a like number of shares of Common Stock, and such
shares and shall not be issuable by the corporation. The Articles of
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.
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9. Repurchase of Shares. Each holder of an outstanding
share of Preferred Stock shall be deemed to have consented, for purposes of
Sections 502, 503 and 506 of the California Corporations Code, to distributions
made by the corporation in connection with the repurchase of shares of Common
Stock issued to or held by employees, officers, directors, consultants or other
persons performing services for the Company or any subsidiary pursuant to
agreements under which the Company has the option to repurchase such shares at
cost or upon the occurrence of certain events, such as the termination of
employment.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of
holders of all classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Common Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of any assets of the
corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation,
dissolution or winding up of the corporation, the assets of the corporation
shall be distributed as provided in Article III(B)(2).
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common
Stock shall have the right to one vote, and shall be entitled to notice of any
shareholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE IV
A. Elimination of Liability. The liability of the
directors of this corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
B. Indemnification. This corporation is authorized to
provide indemnification of agents (as defined in Section 317 of the California
Corporations Code) through bylaw provisions, agreements with the agents, vote
of shareholders or disinterested directors, or otherwise in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to applicable limits set forth in Section 204
of the California Corporations Code with respect to actions for breach of duty
to the corporation and its shareholders.
C. Repeal or Modification. Any repeal or modification
of the foregoing provisions of this Article IV by the shareholders of the
corporation shall not adversely affect any right or protection of an officer or
director of the corporation pursuant to this Article IV existing at the time of
such repeal or modification.
19.
<PAGE> 61
* * *
THREE: The foregoing amendment has been approved by the
Board of Directors of said corporation.
FOUR: The foregoing amendment and restatement was approved
by the holders of the requisite number of shares of said corporation in
accordance with Sections 902 and 903 of the California Corporations Code; the
total number of outstanding shares of each class entitled to vote with respect
to the foregoing amendment was 2,917,500 shares of Common Stock, 1,000,000
shares of Series A Preferred Stock, 2,226,667 shares of Series B Preferred
Stock and 200,000 shares of Series Z Preferred Stock. The number of shares
voting in favor of the foregoing amendment equaled or exceeded the vote
required, such required vote being (1) a majority of the outstanding shares of
Common Stock voting separately, (2) a majority of the outstanding shares of
each of Series A, Series B and Series Z Preferred Stock, each voting
separately, (3) a majority of the outstanding shares of Preferred Stock, voting
together as a single class, (4) seventy percent (70%) of the outstanding shares
of Series A Preferred Stock, Series B Preferred Stock and Series Z Preferred
Stock, voting together as a single class, and (5) a majority of the outstanding
shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock and
Series Z Preferred Stock, voting together as a single class.
20.
<PAGE> 62
IN WITNESS WHEREOF, the undersigned have executed this certificate on
August ___, 1995.
<TABLE>
<S> <C>
-----------------------------------------
Robert A. Curtis, President
-----------------------------------------
Craig S. Andrews, Secretary
</TABLE>
The undersigned certify under penalty of perjury that they
have read the foregoing Amended and Restated Articles of Incorporation and know
the contents thereof, and that the statements therein are true.
Executed at San Diego, California, on August ___, 1995.
<TABLE>
<S> <C>
-----------------------------------------
Robert A. Curtis
-----------------------------------------
Craig S. Andrews
</TABLE>
<PAGE> 63
EXHIBIT B
INVESTORS' RIGHTS AGREEMENT
<PAGE> 64
COMBICHEM, INC.
____________________
INVESTORS' RIGHTS AGREEMENT
August 17, 1995
<PAGE> 65
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . 2
1.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Requested Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 Company Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 Expenses of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.5 Registration on Form S-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.6 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.8 Information by Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.9 Limitations on Registration of Issues of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.10 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.11 Transfer or Assignment of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.12 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.13 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.14 Allocation of Registration Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.15 Delay of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.16 Termination of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2 COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1 Basic Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 Additional Information and Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4 Key Person Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.5 Representation on Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.6 Termination of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3 Entire Agreement; Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.4 Notices, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.5 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.6 Rights; Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.7 Information Confidential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.8 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 66
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made
and entered into as of the 17th day of August, 1995 by and among CombiChem,
Inc., a California corporation (the "Company"), and the persons identified on
Exhibit A attached hereto (the "Investors").
RECITALS
WHEREAS, certain of the Investors possess registration rights
pursuant to that certain Amended and Restated Stock Registration Rights
Agreement dated November 1, 1994, as amended through the date hereof between
the Company and such Investors (the "Rights Agreement"); and
WHEREAS, the Company has entered into a Series Z Stock
Registration Rights Agreement (the "Series Z Rights Agreement") with Dr. Sydney
Brenner ("Brenner") pursuant to which Brenner has certain registration with
respect to shares of Series Z Preferred Stock; and
WHEREAS, certain of the Investors possess information rights,
rights of first refusal and other rights, and the Company is obligated
thereunder, pursuant to (a) Sections 5, 6 and 7 of (i) that certain Preferred
Stock Purchase Agreement between the Company and Forward Ventures II, L.P.
dated August 26, 1994 and (ii) that certain Stock Purchase Agreement Preferred
and Common among the Company, Sequoia Capital VI, Sequoia Technology Partners
VI and Sequoia XXIV dated November 1, 1994 (the "Series A Provisions") and/or
(b) Sections 5, 6 and 7 of that certain Stock Purchase Agreement Series B
Preferred among the Company and certain of the Investors dated November 29,
1994 (the "Series B Provisions") and/or (c) Sections 6 and 7 of that certain
Preferred Stock Purchase Agreement dated October 12, 1994 between the Company
and Brenner (the "Series Z Provisions") (collectively, the Rights Agreement,
the Series Z Rights Agreement, the Series A Provisions, the Series B Provisions
and the Series Z Provisions shall be known as the "Prior Agreements"); and
WHEREAS, the Rights Agreement and the Series Z Rights
Agreement may each be modified or amended with the written consent of the
Company and the holders of a majority of the Registrable Securities (as defined
in the Rights Agreement or the Series Z Rights Agreement, respectively) then
outstanding; the Series A Provisions may be modified or amended with the
written consent of the parties thereto; the Series B Provisions may be modified
or amended with the written consent of the parties thereto; the Series Z
Provisions may be modified or amended with the written consent of the parties
thereto; and
WHEREAS, the Investors which are parties thereto desire to
terminate the Prior Agreements and to accept the rights created pursuant hereto
in lieu of the rights granted to them under the Prior Agreements; and
<PAGE> 67
WHEREAS, certain Investors are parties to the Series C
Preferred Stock Purchase Agreement dated as of the date hereof among the
Company and such Investors (the "Series C Agreement"), certain of the
Investors' obligations under which are conditioned upon the execution and
delivery by such Investors and the Company of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the Investors who are parties to the Prior
Agreements agree that the Prior Agreements shall be superseded and replaced in
their entirety by this Agreement, and all parties hereto further agree as
follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; REGISTRATION RIGHTS
1.1 Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
(a) "Closing" shall mean the date of the initial
sale of shares of the Company's Series C Preferred Stock.
(b) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, or any similar successor federal statute and
the rules and regulations thereunder, all as the same shall be in effect from
time to time.
(c) "Holder" shall mean any Investor who holds
Registrable Securities and any holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in
compliance with Section 1.11 hereof.
(d) "Initial Offering" shall mean the Company's
first firm commitment underwritten public offering of its Common Stock
registered under the Securities Act.
(e) "Initiating Holders" shall mean any Holder or
Holders who in the aggregate hold not less than fifty percent (50%) of the
outstanding Registrable Securities. For purposes of such calculation, Holders
of Shares shall be considered to hold the shares of Common Stock then issuable
upon conversion of such Shares.
(f) "Other Shareholders" shall mean persons other
than Holders who, by virtue of agreements with the Company, are entitled to
include their securities in certain registrations.
(g) "Registrable Securities" shall mean (i)
shares of Common Stock issued or issuable pursuant to the conversion of the
Shares and (ii) any Common Stock issued
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<PAGE> 68
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to
or in exchange for or in replacement of the shares referenced in (i) above;
provided, however, that Registrable Securities shall not include any such
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the
transferor's rights under this Section 1 are not assigned.
(h) The terms "register," "registered" and
"registration" shall refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act and applicable
rules and regulations thereunder, and the declaration or ordering of the
effectiveness of such registration statement.
(i) "Registration Expenses" shall mean all
expenses incurred in effecting any registration pursuant to this Agreement,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, fees and disbursements of one counsel for the Holders (solely with
respect to registrations pursuant to Sections 1.2 and 1.3 hereof), blue sky
fees and expenses, expenses of any regular or special audits incident to or
required by any such registration, but shall not include Selling Expenses (but
excluding the compensation of regular employees of the Company, which shall be
paid in any event by the Company).
(j) "Rule 144" shall mean Rule 144 as promulgated
by the SEC under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the SEC.
(k) "Rule 145" shall mean Rule 145 as promulgated
by the SEC under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the SEC.
(l) "SEC" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(m) "Securities Act" shall mean the Securities
Act of 1933, as amended, or any similar successor federal statute and the rules
and regulations thereunder, all as the same shall be in effect from time to
time, corresponding to such act.
(n) "Selling Expenses" shall mean all
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities and all fees and disbursements of counsel for any Holder
(other than the fees and disbursements of the one counsel included in
Registration Expenses).
(o) "Shares" shall mean shares of the Company's
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series Z Preferred Stock, Series A-
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<PAGE> 69
1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock
held by the Investors.
1.2 Requested Registration.
(a) Request for Registration. If the Company
shall receive from Initiating Holders at any time or times not earlier than the
earlier of (i) January 1, 1998 or (ii) six (6) months after the effective date
of the first registration statement filed by the Company covering an
underwritten offering of any of its securities to the general public, a written
request specifying that it is made pursuant to this Section 1.2 that the
Company effect a registration with respect to all or a part of the Registrable
Securities having a reasonably anticipated aggregate offering price, net of
underwriting discounts and commissions, that exceeds $12,000,000, the Company
will:
(i) promptly give written notice of the
proposed registration to all other Holders; and
(ii) as soon as practicable, use its
diligent best efforts to effect such registration (including, without
limitation, filing post-effective amendments, appropriate qualifications under
applicable blue sky or other state securities laws and appropriate compliance
with the Securities Act) as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within twenty (20) days after such
written notice from the Company is effective.
The Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act; or
(B) After the Company has effected
two such registrations pursuant to this Section 1.2(a) and such registrations
have been declared or ordered effective; or
(C) During the period starting with
the date of filing of and ending on a date one hundred eighty (180) days after
the effective date of a registration pursuant to Section 1.3 hereof; provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or
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<PAGE> 70
(D) If the Initiating Holders
propose to dispose of shares of Registrable Securities that may be immediately
registered on Form S-3 pursuant to a request made under Section 1.5 hereof.
(b) Subject to the foregoing Section 1.2(a)(ii)
(A) through (D), the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Initiating Holders; provided,
however, that if (i) in the good faith judgment of the Board of Directors of
the Company, such registration would be seriously detrimental to the Company
and the Board of Directors of the Company concludes, as a result, that it is
essential to defer the filing of such registration statement at such time, and
(ii) the Company shall furnish to such Holders a certificate signed by the
president of the Company stating that in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to the Company
for such registration statement to be filed in the near future and that it is,
therefore, essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for the period during
which such disclosure would be seriously detrimental, provided, that the
Company may not defer the filing for a period of more than ninety (90) days
after receipt of the request of the Initiating Holders, and, provided further,
that (except as provided in Section 1.2(a)(ii)(C) above) the Company shall not
defer its obligation in this manner more than once in any twelve-month period.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 1.2(b) and
1.14 hereof, include other securities of the Company and may include securities
of the Company being sold for the account of the Company.
(c) Underwriting. If the Initiating Holders
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to Section 1.2 and the Company shall include such
information in the written notice referred to in Section 1.2(a)(i) above. The
right of any Holder to registration pursuant to Section 1.2 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder with respect to such participation and inclusion) to the extent
provided herein. A Holder may elect to include in such underwriting all or a
part of the Registrable Securities he holds.
(d) Procedures. If the Company shall request
inclusion in any registration pursuant to Section 1.2 of securities being sold
for its own account, or if other persons shall request inclusion in any
registration pursuant to Section 1.2, the Initiating Holders shall, on behalf
of all Holders, offer to include such securities in the underwriting and may
condition such offer on their acceptance of the further applicable provisions
of this Section 1 (including Section 1.13). The Company shall (together with
all Holders, and other persons proposing to distribute their securities through
such underwriting) enter into an
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<PAGE> 71
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriter(s) are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.2, if the representative of the underwriters advises the Initiating Holders
in writing that marketing factors require a limitation on the number of shares
to be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 1.14 hereof. If the
person who has requested inclusion in such registration as provided above does
not agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating
Holders. The securities so excluded shall also be withdrawn from registration.
Any Registrable Securities or other securities excluded shall also be withdrawn
from such registration. If shares are so withdrawn from the registration and
if the number of shares to be included in such registration was previously
reduced as a result of marketing factors pursuant to this Section 1.2(d), then
the Company shall offer to all holders who have retained rights to include
securities in the registration the right to include additional securities in
the registration in an aggregate amount equal to the number of shares
withdrawn, with such shares to be allocated among such Holders requesting
additional inclusion in accordance with Section 1.14.
1.3 Company Registration.
(a) Company Registration. If the Company shall
determine to register any of its securities either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights (other than pursuant to Section 1.2 hereof), other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, or the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public, the Company will:
(i) promptly give to each Holder written
notice thereof; and
(ii) use its best efforts to include in
such registration (and any related qualification under blue sky laws or other
compliance), except as set forth in Section 1.3(b) below, and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder within twenty (20) days after
the written notice from the Company described in Section 1.3(a)(i) above is
effective. Such written request may specify all or a part of a Holder's
Registrable Securities for inclusion.
(b) Underwriting. If the registration of which
the Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 1.3(a)(i). In such event the right of any
Holder to registration pursuant to Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders
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<PAGE> 72
proposing to distribute their securities through such underwriting shall
(together with the Company and the holders of other securities of the Company
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 1.3, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and underwriting.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated first to the Company for
securities being sold for its own account and thereafter as set forth in
Section 1.13. If any person does not agree to the terms of any such
underwriting, he shall be excluded therefrom by written notice from the Company
or the underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the
number of shares of Registrable Securities to be included in such registration
was previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such
shares to be allocated among the persons requesting additional inclusion in
accordance with Section 1.14 hereof.
1.4 Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to Sections 1.3 and 1.5 hereof, and the first two registrations
pursuant to Section 1.2 hereof shall be borne by the Company; provided,
however, that if the Holders bear the Registration Expenses for any
registration proceeding begun pursuant to Section 1.2 and subsequently
withdrawn by the Holders registering shares therein, such registration
proceeding shall not be counted as a requested registration pursuant to Section
1.2 hereof, except in the event that such withdrawal is based upon material
adverse information relating to the Company that is different from the
information known or available (upon request from the Company or otherwise) to
the Holders requesting registration at the time of their request for
registration under Section 1.2, in which event such registration shall not be
treated as a counted registration for purposes of Section 1.2 hereof even
though the Holders do not bear the Registration Expenses for such registration.
All Selling Expenses relating to securities so registered shall be borne by the
holders of such securities pro rata on the basis of the number of shares of
securities so registered on their behalf.
1.5 Registration on Form S-3.
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<PAGE> 73
(a) After the Initial Offering, the Company shall
use its best efforts to qualify for registration on Form S-3 or any comparable
or successor form or forms. After the Company has qualified for the use of
Form S-3, in addition to the rights contained in the foregoing provisions of
this Section 1, the Holders of Registrable Securities shall have the right to
request registrations on Form S-3 (such requests shall be in writing and shall
state the number of shares of Registrable Securities to be disposed of and the
intended methods of disposition of such shares by such Holder or Holders),
provided, however, that the Company shall not be obligated to effect any such
registration if (i) the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) on Form S-3
at an aggregate price to the public of less than $500,000, or (ii) in the event
that the Company shall furnish the certification described in paragraph
1.2(a)(ii) (but subject to the limitations set forth therein) or (iii) in a
given twelve-month period, after the Company has effected one (1) such
registration in any such period.
(b) If a request complying with the requirements
of Section 1.5(a) hereof is delivered to the Company, the provisions of
Sections 1.2(a)(i) and (ii) and Section 1.2(b) hereof shall apply to such
registration. If the registration is for an underwritten offering, the
provisions of Sections 1.2(c) and 1.2(d) hereof shall apply to such
registration.
1.6 Registration Procedures. In the case of each
registration effected by the Company pursuant to Section 1, the Company will
keep each Holder advised in writing as to the initiation of each registration
and as to the completion thereof. At its expense, the Company will use its
best efforts to:
(a) Keep such registration effective for a period
of one hundred twenty (120) days or until the Holder or Holders have completed
the distribution described in the registration statement relating thereto,
whichever first occurs; provided, however, that (i) such 120-day period shall
be extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Securities
Act governing the obligation to file a post-effective amendment permit, in lieu
of filing a post-effective amendment which (I) includes any prospectus required
by Section 10(a)(3) of the Securities Act or (II) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of information
required to be included in (I) and (II) above to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the
registration statement;
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(b) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other
documents incident thereto, including any preliminary prospectus or amendment
of or supplement to the prospectus, as a Holder from time to time may
reasonably request;
(d) Notify each seller of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act on the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing;
(e) Use all reasonable efforts to register and
qualify the securities covered by the registration statement under such other
securities or Blue Sky laws of such jurisdiction as shall be reasonably
requested by the Holders; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such state
or jurisdiction;
(f) Cause all such Registrable Securities
registered pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed;
(g) Provide a transfer agent and registrar for
all Registrable Securities registered pursuant hereunder and a CUSIP number for
all such Registrable Securities, in each case not later than the effective date
of such registration;
(h) Otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months, but not more than eighteen
(18) months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions
of Section II(a) of the Securities Act;
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(i) In connection with any underwritten offering
pursuant to a registration statement filed pursuant to Section 1.2 hereof, the
Company will enter into an underwriting agreement reasonably necessary to
effect the offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions and provided further that if the
underwriter so requests the underwriting agreement will contain customary
contribution provisions; and
(j) Furnish, at the request of a majority of the
Holders participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that such registration statement with respect
to such securities becomes effective, (A) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (B) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
1.7 Indemnification.
(a) The Company will indemnify each Holder, each
of its officers, directors and partners, legal counsel and accountants and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Section 1 and each underwriter, if any, and
each person who controls within the meaning of Section 15 of the Securities Act
any underwriter, against all expenses, claims, losses, damages and liabilities
(or actions, proceedings or settlements in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
the Company of the Securities Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors, partners,
legal counsel and accountants and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability
or action, provided that the Company will not be liable in any such
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case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by such Holder or underwriter and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section 1.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent has
not been unreasonably withheld).
(b) Each Holder will, if Registrable Securities
held by him are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, legal counsel and accountants and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, each other such Holder and Other
Shareholder and each of their officers, directors and partners, and each person
controlling such Holder or Other Shareholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders, Other
Shareholders, directors, officers, partners, legal counsel and accountants,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder;
provided, however, that the obligations of such Holder hereunder shall not
apply to amounts paid in settlement of any such claims, losses, damages or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld).
(c) Each party entitled to indemnification under
this Section 1.7 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
1, to the extent such failure is not prejudicial. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party,
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consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this
Section 1.7 is held by a court of competent jurisdiction to be unavailable to
an Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the statements or omissions which
resulted in such loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relative fault of the Indemnifying
Party and of the Indemnified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
1.8 Information by Holder. Each Holder of Registrable
Securities shall furnish to the Company such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Section 1.
1.9 Limitations on Registration of Issues of Securities.
From and after the date of this Agreement, the Company shall not, without the
prior written consent of a majority in interest of the Holders, enter into any
agreement with any holder or prospective holder of any securities of the
Company giving such holder or prospective holder any registration rights the
terms of which are more favorable than the registration rights granted to the
Holders hereunder.
1.10 Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
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(a) Make and keep public information available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after ninety (90) days following the effective date of the
first registration under the Securities Act filed by the Company for an
offering of its securities to the general public;
(b) File with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act at any time after it has become subject to such reporting
requirements;
(c) So long as a Holder owns any Registrable
Securities, furnish to the Holder forthwith upon written request a written
statement by the Company as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as a Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Holder to sell any such securities without registration.
1.11 Transfer or Assignment of Registration Rights. The
rights to cause the Company to register securities granted to a Holder by the
Company under Sections 1.2, 1.3 and 1.5 may be transferred or assigned by a
Holder only to a transferee or assignee of not less than 25,000 shares of
Registrable Securities (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits and the
like), and only provided that the Company is given written notice at the time
of or within a reasonable time after said transfer or assignment, stating the
name and address of said transferee or assignee and identifying the securities
with respect to which such registration rights are being transferred or
assigned, and provided further that the transferee or assignee of such rights
assumes the obligations of such Holder under this Article 1.
1.12 Restrictions on Transfer.
(a) Each Holder agrees not to transfer or dispose
of all or any portion of the Registrable Securities unless and until the
proposed transferee has agreed in writing for the benefit of the Company to be
bound by this Section 1.12, provided and to the extent this Section 1.12 is
then applicable and:
(i) There is then in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such registration
statement; or
(ii) (A) Such Holder shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances surrounding the proposed
disposition, and (B) if requested by the Company,
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such Holder shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, to the effect that such disposition
will not require registration of such shares under the Securities Act.
Notwithstanding the provisions of subsections (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
(A) by a Holder which is a partnership to its partners or retired partners in
accordance with partnership interests, (B) to a Holder's family member or trust
for the benefit of an individual Holder, provided that the transferee will be
subject to the terms of this Section 1.12 to the same extent as if he were an
original Holer hereunder, or (C) pursuant to Rule 144(k); provided, however,
that the Company must be satisfied in its reasonable discretion that the
proposed sale of securities fully qualifies with all Rule 144 requirements.
(b) Each certificate representing Registrable
Securities shall (unless otherwise permitted by the provisions of this
Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
1.13 "Market Stand-Off" Agreement. If requested by the
Company and an underwriter of Common Stock (or other securities) of the
Company, an Investor shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Investor (other
than those included in the registration) during the one hundred eighty (180)
day period following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all Holders and officers
and directors of the Company enter into similar agreements.
The obligations described in this Section 1.13 shall not apply
to a registration relating solely to employee benefit plans on Form S-1 or Form
S-8 or similar forms which may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4, Form S-14 or Form S-15
or similar forms which may be promulgated in the future. The Company may
impose stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said one hundred eighty
(180) day period.
1.14 Allocation of Registration Opportunities. In any
circumstance in which all of the Registrable Securities and other shares of
Common Stock of the Company
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(including shares of Common Stock issued or issuable upon conversion of shares
of any currently unissued series of Preferred Stock of the Company) with
registration rights (the "Other Shares") requested to be included in a
registration on behalf of the Holders or other selling shareholders cannot be
so included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares which may be so included, the number of
shares of Registrable Securities and Other Shares which may be so included
shall be allocated among the Holders and other selling shareholders requesting
inclusion of shares pro rata on the basis of the number of shares of
Registrable Securities and Other Shares that would be held by such Holders and
other selling shareholders, assuming conversion; provided, however, that, so
that such allocation shall not operate to reduce the aggregate number of
Registrable Securities and Other Shares to be included in such registration, if
any Holder or other selling shareholder does not request inclusion of the
maximum number of shares of Registrable Securities and Other Shares allocated
to him pursuant to the above-described procedure, the remaining portion of his
allocation shall be reallocated among those requesting Holders and other
selling shareholders whose allocations did not satisfy their requests pro rata
on the basis of the number of shares of Registrable Securities and Other Shares
that would be held by such Holders and other selling shareholders, assuming
conversion, and this procedure shall be repeated until all of the shares of
Registrable Securities and Other Shares that may be included in the
registration on behalf of the Holders and other selling shareholders have been
so allocated. The Company shall not limit the number of Registrable Securities
to be included in a registration pursuant to this Agreement in order to include
shares held by shareholders with no registration rights or to include Founder's
Stock or any other shares of stock issued to employees, officers, directors or
consultants pursuant to the Company's stock option plan, or with respect to
registrations under Sections 1.2 or 1.5 hereof, in order to include in such
registration securities registered for the Company's own account or included at
the request of the Company pursuant to Section 1.3 hereof without the prior
written consent of seventy percent (70%) of the Holders; provided, further,
that in no event will the amount of securities of the selling Holders included
in a registration pursuant to Section 1.3 hereof be reduced below twenty
percent (20%) of the total amount of securities included in such offering,
unless such offering is the Initial Offering of the Company's securities in
which case the selling shareholders may be excluded entirely if the
underwriters make the determination described above and no other shareholder's
securities are included. For purposes of determining allocation hereunder, for
any selling shareholder which is a Holder of Registrable Securities and which
is a partnership or corporation, the partners, retired partners and
shareholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons will be deemed to be a single "selling shareholder," and any
pro-rata reduction with respect to such "selling shareholder" will be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder."
1.15 Delay of Registration. No Holder shall have any
right to take and, action to restrain, enjoin, or otherwise delay any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
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1.16 Termination of Registration Rights. The right of any
Holder to request registration or inclusion in any registration pursuant to
Sections 1.2, 1.3 or 1.5 shall terminate on the closing of the first
Company-initiated registered public offering of Common Stock of the Company,
provided that all shares of Registrable Securities held or entitled to be held
upon conversion by such Holder may immediately be sold under Rule 144 during
any 90-day period, or on such date after the closing of the first
Company-initiated registered public offering of Common Stock of the Company as
all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold under Rule 144 during any
90-day period.
SECTION 2
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees, so long as any Holder
owns any Registrable Shares as follows:
2.1 Basic Financial Information. The Company will
furnish the following reports to each Holder:
(a) As soon as practicable after the end of each
fiscal year of the Company, and in any event within ninety (90) days
thereafter, a consolidated balance sheet of the Company and its subsidiaries,
if any, as at the end of such fiscal year, and consolidated statements of
income and sources and applications of funds of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail and certified by independent public accountants of recognized
national standing selected by the Company.
(b) As soon as practicable after the end of the
first, second and third quarterly accounting periods in each fiscal year of the
Company, and in any event within forty-five (45) days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of each such quarterly period, and consolidated statements of income
and sources and applications of funds of the Company and its subsidiaries for
such period and for the current fiscal year to date, prepared in accordance
with generally accepted accounting principles consistently applied and setting
forth in comparative form the figures for the corresponding periods of the
previous fiscal year and to the Company's operating plan then in effect and
approved by its Board of Directors, subject to changes resulting from normal
year-end audit adjustments, all in reasonable detail and certified by the
principal financial or accounting officer of the Company, except that such
balance sheet need not contain the notes required by generally accepted
accounting principles.
2.2 Additional Information and Rights.
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(a) The Company will permit any Investor, so long
as such Investor (or its representative) owns at least 200,000 Shares, or such
number of shares of Common Stock issued upon conversion of 200,000 or more
Shares, or any combination thereof (as presently constituted and subject to
subsequent adjustment for stock splits, stock dividends, reverse stock splits,
recapitalizations and the like) (a "Significant Holder") (or a representative
of any Significant Holder) to visit and inspect any of the properties of the
Company, including its books of account and other records (and make copies
thereof and take extracts therefrom), and to discuss its affairs, finances and
accounts with the Company's officers and its independent public accountants,
all at such reasonable times and as often as any such person may reasonably
request.
(b) Until the earlier to occur of (i) the date on
which the Company is subject to the reporting requirements of Sections 13(a) or
15(d) of the Exchange Act, or (ii) the date on which quotations for the Common
Stock of the Company are reported by the automated quotations systems operated
by the National Association of Securities Dealers, Inc., or by an equivalent
quotations system, the Company will deliver the reports described below in this
Section 2.2 to each Significant Holder:
(i) As soon as practical after the end
of each month and in any event within thirty (30) days thereafter a
consolidated balance sheet of the Company and its subsidiaries, if any, as at
the end of such month and consolidated statements of income and of sources and
applications of funds of the Company and its subsidiaries, for each month and
for the current fiscal year of the Company to date, all subject to normal
year-end audit adjustments, prepared in accordance with generally accepted
accounting principles consistently applied and certified by the principal
financial or accounting officer of the Company, together with a comparison of
such statements to the corresponding periods of the prior fiscal year and to
the Company's operating plan then in effect and approved by its Board of
Directors.
(c) The provisions of Section 2.1 and this
Section 2.2 shall not be in limitation of any rights which any Holder or
Significant Holder may have with respect to the books and records of the
Company and its subsidiaries, or to inspect their properties or discuss their
affairs, finances and accounts, under the laws of the jurisdictions in which
they are incorporated.
(d) Anything in Section 2 to the contrary
notwithstanding, no Holder or Significant Holder by reason of this Agreement
shall have access to any trade secrets or classified information of the
Company. Each Significant Holder hereby agrees to hold in confidence and trust
and not to misuse or disclose any confidential information provided pursuant to
this Section 2.2.
(e) Each Holder who represents to the Company
that it is a "venture capital operating company" for purposes of Department of
Labor Regulation Section 2510.3-101 shall in addition have the right to consult
with and advise the officers of the Company as to the management of the
Company.
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2.3 Right of First Refusal. The Company hereby grants to
each Holder who owns any shares of Series A, Series B, Series C, Series A-1,
Series B-1 or Series C-1 Preferred Stock (the "Cash Preferred") or any shares
of Common Stock issued upon conversion of the Cash Preferred (the "Rights
Holder") the right of first refusal to purchase a Pro Rata Share (as defined in
this Section 2.3) of New Securities (as defined in this Section 2.3) which the
Company may, from time to time, propose to sell and issue. A Rights Holder's
Pro Rata Share, for purposes of this right of first refusal, is the ratio of
the number of shares of Common Stock owned by such Rights Holder immediately
prior to the issuance of New Securities, assuming full conversion of the
Shares, to the total number of shares of Common Stock outstanding immediately
prior to the issuance of New Securities, assuming full conversion of the Shares
and exercise of all outstanding rights, options and warrants to acquire Common
Stock of the Company. Each Rights Holder shall have a right of over-allotment
such that if any Rights Holder fails to exercise its right hereunder to
purchase its Pro Rata Share of New Securities, the other Rights Holders may
purchase the non-purchasing Rights Holder's portion on a pro rata basis within
ten (10) days from the date such non-purchasing Rights Holder fails to exercise
its right hereunder to purchase its pro rata share of New Securities. This
right of first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock
(including Common Stock and/or Preferred Stock) of the Company whether now
authorized or not, and rights, options or warrants to purchase such capital
stock, and securities of any type whatsoever that are, or may become,
convertible into capital stock; provided that the term "New Securities" does
not include (i) securities purchased under the Series C Agreement; (ii)
securities issued upon conversion of the Shares; (iii) securities issued
pursuant to the acquisition of another business entity or business segment of
any such entity by the Company by merger, purchase of substantially all the
assets or other reorganization whereby the Company will own not less than
fifty-one percent (51%) of the voting power of such business entity or business
segment of any such entity; (iv) any borrowings, direct or indirect, from
financial institutions or other persons by the Company, whether or not
presently authorized, including any type of loan or payment evidenced by any
type of debt instrument, provided such borrowings do not have any equity
features including warrants, options or other rights to purchase capital stock
and are not convertible into capital stock of the Company; (v) securities
issued to employees, consultants, officers or directors of the Company pursuant
to any stock option, stock purchase or stock bonus plan, agreement or
arrangement approved by the Board of Directors; (vi) securities issued to
vendors or customers or to other persons in similar commercial situations with
the Company if such issuance is approved by the Board of Directors; (vii)
securities issued in connection with obtaining lease financing, whether issued
to a lessor, guarantor or other person; (viii) securities issued in a firm
commitment underwritten public offering pursuant to a registration under the
Securities Act with an aggregate offering price to the public in excess of $5.0
million; (ix) securities issued in connection with any stock split, stock
dividend or recapitalization of the Company; and (x) any right, option or
warrant to acquire any security convertible into the securities excluded from
the definition of New Securities pursuant to subsections (i) through (ix)
above.
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(b) In the event the Company proposes to
undertake an issuance of New Securities, it shall give each Rights Holder
written notice of its intention, describing the type of New Securities, and
their price and the general terms upon which the Company proposes to issue the
same. Each Rights Holder shall have twenty (20) days after any such notice is
effective to agree to purchase such Rights Holder's Pro Rata Share of such New
Securities for the price and upon the terms specified in the notice by giving
written notice to the Company and stating therein the quantity of New
Securities to be purchased.
(c) In the event the Rights Holders fail to
exercise fully the right of first refusal within said twenty (20)-day period
and after the expiration of the ten (10)-day period for the exercise of the
over-allotment provisions of this Section 2.3, the Company shall have one
hundred twenty (120) days thereafter to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be closed,
if at all, within one hundred twenty (120) days from the date of said
agreement) to sell the New Securities respecting which the Rights Holders'
right of first refusal option set forth in this Section 2.3 was not exercised,
at a price and upon terms no more favorable to the purchasers thereof than
specified in the Company's notice to Rights Holders pursuant to Section 2.3(b).
In the event the Company has not sold within said one hundred twenty (120)-day
period or entered into an agreement to sell the New Securities within said one
hundred twenty (120)-day period (or sold and issued New Securities in
accordance with the foregoing within one hundred twenty (120) days from the
date of said agreement), the Company shall not thereafter issue or sell any New
Securities, without first again offering such securities to the Rights Holders
in the manner provided in Section 2.3(b) above.
(d) At any time following the date of this
Agreement, if the Company has complied with its notice obligations pursuant to
this Section 2.3, or such obligations have been waived, and the Company
thereafter proceeds to issue or sell New Securities and a Rights Holder does
not acquire his, her or its Pro Rata Share (a "Non-Participating Rights
Holder"), then all of such Non-Participating Rights Holder's Cash Preferred
shall automatically and without further action on the part of such holder be
converted, pursuant to Article III(B)(4)(m) of the Company's Amended and
Restated Articles of Incorporation, effective upon, subject to, and
concurrently with, the consummation of the issuance and sale of the New
Securities into an equivalent number of shares of Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock, respectively;
provided, however, that no such conversion shall occur in connection with a
particular issuance of sale of New Securities if, pursuant to the written
request of this corporation, such holder agrees in writing to waive his, her or
its right of first refusal hereunder with respect to such issuance or sale.
(e) The right of first refusal granted under this
Agreement shall expire upon, and shall not be applicable to, the first sale of
Common Stock of the Company to the public effected pursuant to a registration
statement filed with, and declared effective by, the SEC under the Securities
Act, with proceeds of more than $5,000,000.
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<PAGE> 85
(f) The right of first refusal set forth in this
Section 2.3 may not be assigned or transferred, except that (i) such right is
assignable by each Rights Holder to any wholly owned subsidiary or parent of,
or to any corporation or entity that is, within the meaning of the Securities
Act, controlling, controlled by or under common control with, any such Rights
Holder, and (ii) such right is assignable between and among any of the Rights
Holders.
2.4 Key Person Life Insurance. The Company has as of the
date hereof obtained from financially sound and reputable insurers term life
insurance on the life of Steve Teig in the amount of $2,000,000 (the "Teig
Insurance"), and shall maintain with financially sound and reputable insurers
the Teig Insurance and term life insurance on the life of Robert Curtis in the
amount of $1,000,000, except as otherwise decided in accordance with policies
adopted by the Company's Board of Directors. Such policies shall name the
Company as loss payee and shall not be cancelable by the Company without prior
approval of the Board of Directors.
2.5 Representation on Board of Directors. So long as any
Shares remain outstanding, the Company will use its best efforts to cause and
maintain the election to the Board of Directors of (a) two people designated by
the holders of a majority of the Series C Preferred Stock outstanding,
including Common Stock issued upon conversion of such Series C Preferred Stock
(each a "Series C Director"), and (b) two people designated by the holders of a
majority of the Series A and Series B Preferred Stock outstanding, including
Common Stock issued upon conversion of such Series A and B Preferred Stock.
One Series C Director shall be designated by The Sprout Group and the other
Series C Director shall be designated, subject to the consent of The Sprout
Group, by a holder of at least 2,419,355 shares of Series C Preferred Stock in
the aggregate. In the event that two or more holders of Series C Preferred
Stock, other than The Sprout Group, each hold in excess of 2,419,355 shares of
Series C Preferred Stock, then that holder holding the greatest number of
shares of Series C Preferred Stock shall have the right to designate the
remaining Series C Director. In the event that two or more such holders hold
an equal number of Series C Preferred Stock, then The Sprout Group shall
determine which of them shall designate the remaining Series C Director. The
Company further agrees that it will take all actions reasonably necessary,
including increasing the current number of directors in accordance with the
provisions of the Company's Bylaws, to permit all such designations of
directors to occur on or immediately prior to the regular meeting of the Board
of Directors to be scheduled in September 1995, but in no event later than
September 30, 1995.
For purposes of the designation of the Series C Director, a holder
shall include an Investor who has purchased or agreed to purchase at least
2,419,355 shares of Series C Preferred Stock pursuant to the Series C Preferred
Stock Purchase Agreement of even date herewith. For the purposes of this
paragraph, a "holder" shall include the affiliates of any holder.
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<PAGE> 86
2.6 Termination of Covenants. The covenants set forth in
this Section 2 shall terminate and be of no further force and effect after the
time of effectiveness of the Company's first firm commitment underwritten
public offering registered under the Securities Act.
SECTION 3
MISCELLANEOUS
3.1 Governing Law. This Agreement shall be governed in
all respects by the laws of the State of California, as if entered into by and
between California residents exclusively for performance entirely within
California.
3.2 Successors and Assigns. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
3.3 Entire Agreement; Amendment; Waiver. This Agreement
(including the Exhibits hereto) constitutes the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated, except by a written instrument signed by the Company
and the holders of at least fifty percent (50%) of the Registrable Shares and
any such amendment, waiver, discharge or termination shall be binding on all
the Holders, but in no event shall the obligation of any Holder hereunder be
materially increased, except upon the written consent of such Holder.
3.4 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
United States first-class mail, postage prepaid, or delivered personally
addressed by hand or special courier (a) if to a Holder, as indicated on the
list of Holders attached hereto as Exhibit A, or at such other address as such
Investor or permitted assignee shall have furnished to the Company in writing,
or (b) if to the Company, at 11099 N. Torrey Pines Road, Suite 200, La Jolla,
California 92037, or at such other address as the Company shall have furnished
to each holder in writing. All such notices and other written communications
shall be effective (i) if mailed, five (5) days after mailing and (ii) if
delivered, upon delivery.
3.5 Delays or Omissions. No delay or omission to
exercise any right, power or remedy accruing to any Holder, upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such Holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any Holder of any breach or default under this
Agreement or any waiver on the part of any
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<PAGE> 87
Holder of any provisions or conditions of this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement or by law or otherwise
afforded to any Holder, shall be cumulative and not alternative.
3.6 Rights; Separability. Unless otherwise expressly
provided herein, a Holder's rights hereunder are several rights, not rights
jointly held with any of the other Holders. In case any provision of the
Agreement shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
3.7 Information Confidential. Each Holder acknowledges
that the information received by them pursuant hereto may be confidential and
for its use only, and it will not use such confidential information in
violation of the Exchange Act or reproduce, disclose or disseminate such
information to any other person (other than its employees or agents having a
need to know the contents of such information, and its attorneys), except in
connection with the exercise of rights under this Agreement, unless the Company
has made such information available to the public generally or such Holder is
required to disclose such information by a governmental body.
3.8 Titles and Subtitles. The titles of the paragraphs
and subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.
3.9 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 88
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above
written.
COMBICHEM, INC.
By:
---------------------------------------
Title:
------------------------------------
HOLDER:
-------------------------------------------
[Name of Holder]
By:
---------------------------------------
Title:
------------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 89
EXHIBIT A
INVESTORS
Forward Ventures II, L.P.
Sequoia Capital VI
Sequoia Technology Partners VI
Sequoia XXIV
Lynn H. Caporale
Sydney Brenner
Sprout Capital VII, L.P.
DLJ Capital Corporation
Sofinnova Ventures III, L.P.
Singapore Bio-Innovations Pte, Ltd
PaineWebber Incorporated as Custodian of the Michael Grossman Rollover IRA
Steven M. Lash
First Interstate Bank as Trustee for SK International Securities Corp.
401(k)PS em Stephen J. Kandel
Byron T. Franzen
IRA FBO Byron T. Franzen
M.L. Lawrence Revocable Trust
Farley Inc.
Ambex Technologies
Sorrento Ventures II, L.P.
Sorrento Growth Partners I, L.P.
Comdisco, Inc.
Brinson Venture Capital Fund III, L.P.
Brinson Trust Company as Trustee of the Brinson MAP Venture Capital Fund III
<PAGE> 90
EXHIBIT C
SHAREHOLDER LIST
<TABLE>
<CAPTION>
CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------------------------------------- ----------
<S> <C> <C>
Common Kim D. Janda 175,000
Common Chi-Huey Wong 150,000
Common Dale L. Boger 150,000
Common Eric Erb 10,000
Common Standish Fleming 37,500
Common Trustees of Royston Family Trust UTA 2/12/82 37,500
Common Sydney Brenner 150,000
Common Forward Ventures II, L.P. 225,000
Common Jeffrey Sollender 10,000
Common Robert A. Curtis 500,000
Common Gail Erwin 2,500
Common Sequoia Capital VI 91,000
Common Sequoia Technology Partners VI 5,000
Common Sequoia XXIV 4,000
Common Lynn H. Caporale 175,000
Common Bobbie J. Bosley 10,000
Common Eric Erb 5,000
Common Angelo Castillino, Ph.D. 20,000
Common Peter A. Bick 20,000
Common Soan Cheng 20,000
Common Daniel C. M. Sun 10,000
Common Gail Erwin 40,000
Common Christine M. Tarby 14,000
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------------------------------------- ----------
<S> <C> <C> <C>
Common Peter M. Wirsching, Ph.D. 11,764
Common Richard A. Lerner, M.D. 83,000
Common The Scripps Research Institute 305,236
Common Peter Myers 350,000
Common Jonathan Greene 100,000
Common Steven Teig 200,000
Common Ken Rubenstein 6,000
TOTAL COMMON: 2,917,500
Series A Forward Ventures II, L.P. 600,000
Series A Sequoia Capital VI 364,000
Series A Sequoia Technology Partners VI 20,000
Series A Sequoia XXIV 16,000
TOTAL SERIES A: 1,000,000
Series B Sequoia Capital VI 1,213,334
Series B Sequoia Technology VI 66,667
Series B Sequoia Capital VI 53,333
Series B Forward Ventures II, L.P. 866,666
Series B Lynn H. Caporale 26,667
TOTAL SERIES B: 2,226,667
Series Z Sydney Brenner 200,000
TOTAL SERIES Z: 200,000
</TABLE>
<PAGE> 92
EXHIBIT D
CO-SALE AGREEMENT
<PAGE> 93
COMBICHEM, INC.
CO-SALE AGREEMENT
This Co-Sale Agreement is made as of the _____ day of August,
1995, by and among Robert A. Curtis, Peter Myers, Steven Teig, Sydney Brenner,
Kim Janda, Chi-Huey Wong and Dale Boger (individually, a "Founder" and,
collectively, the "Founders"), CombiChem, Inc., a California corporation (the
"Company"), and the undersigned holders of Series A, B or C Preferred Stock of
the Company (the "Shareholders").
In consideration of the mutual covenants set forth herein, the
parties agree as follows:
1. Definitions.
(a) "Stock" shall mean shares of the Company's
Common Stock or Preferred Stock or Series Z Preferred Stock now owned or
subsequently acquired by the Founders.
(b) "Preferred Stock" shall mean the Company's
outstanding Series A, Series B, Series C, Series J, Series Z, Series A-1,
Series B-1 and Series C-1 Preferred Stock.
(c) "Common Stock" shall mean the Company's
Common Stock and shares of Common Stock issued or issuable upon conversion of
the Company's outstanding Preferred Stock.
2. Sales by Founder.
(a) If a Founder proposes to sell or transfer any
shares of Stock in one or more related transactions which will result in (i)
the transfer of 1,000 or more shares of Stock by such Founder or (ii) the
transferee of such shares holding more than 50% of the Common Stock, then such
Founder shall promptly give written notice (the "Notice") to the Company and
the Shareholders at least twenty (20) days prior to the closing of such sale or
transfer. The Notice shall describe in reasonable detail the proposed sale or
transfer including, without limitation, the number of shares of Stock to be
sold or transferred, the nature of such sale or transfer, the consideration to
be paid and the name and address of each prospective purchaser or transferee.
In the event that the sale or transfer is being made pursuant to the provisions
of Sections 3(a) or 3(b) hereof, the Notice shall state under which paragraph
the sale or transfer is being made.
(b) Each Shareholder shall have the right,
exercisable upon written notice to such Founder within 15 days after receipt of
the Notice, to participate in such sale of Stock on the same terms and
conditions. To the extent one or more of the Shareholders exercise such right
of participation in accordance with the terms and conditions set forth below,
the number of shares of Stock that the Founder may sell in the transaction
shall be correspondingly reduced.
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<PAGE> 94
(c) Each Shareholder may sell all or any part of
that number of shares of Stock equal to the product obtained by multiplying (i)
the aggregate number of shares of Stock covered by the Notice by (ii) a
fraction the numerator of which is the number of shares of Common Stock owned
by the Shareholders at the time of the sale or transfer and the denominator of
which is the total number of shares of Common Stock owned by the Founder and
the Shareholders at the time of the sale or transfer.
(d) If any Shareholder fails to elect to fully
participate in such Founder's sale pursuant to this Section 2, the Founder
shall give notice of such failure to the Shareholders who did so elect (the
"Participants"). Such notice may be made by telephone if confirmed in writing
within two (2) days. The Participants shall have five (5) days from the date
such notice was given to agree to sell their pro rata share of the unsold
portion. For purposes of this Section 2(d), a Participant's pro rata share
shall be the ratio of (x) the number of shares of Common Stock held by such
Participant to (y) the total number of shares of Common Stock held by the
Participants and the Founder.
(e) Each Participant shall effect its
participation in the sale by promptly delivering to the Founder for transfer to
the prospective purchaser one or more certificates, properly endorsed for
transfer, which represent:
(i) the type and number of shares of
Common Stock which such Participant elects to sell; or
(ii) that number of shares of Series A,
Series B or Series C Preferred Stock which is at such time convertible into the
number of shares of Common Stock which such Participant elects to sell;
provided, however, that if the prospective purchaser objects to the delivery of
Series A, Series B or Series C Preferred Stock in lieu of Common Stock, such
Participant shall convert such Preferred Stock into Common Stock and deliver
Common Stock as provided in Section 2(e)(i) above. The Company agrees to make
any such conversion concurrent with the actual transfer of such shares to the
purchaser.
(f) The stock certificate or certificates that
the Participant delivers to the Founder pursuant to Section 2(e) shall be
transferred to the prospective purchaser in consummation of the sale of the
Stock pursuant to the terms and conditions specified in the Notice, and the
Founder shall concurrently therewith remit to such Participant that portion of
the sale proceeds to which such Participant is entitled by reason of its
participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares or
other securities from a Participant exercising its rights of co-sale hereunder,
the Founder shall not sell to such prospective purchaser or purchasers any
Stock unless and until, simultaneously with such sale, the Founder shall
purchase such shares or other securities from such Participant.
(g) The exercise or non-exercise of the rights of
the Participants hereunder to participate in one or more sales of Stock made by
the Founder shall not adversely affect their rights to participate in
subsequent sales of Stock subject to Section 2(a).
3. Exempt Transfers.
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<PAGE> 95
(a) Notwithstanding the foregoing, the co-sale
rights of the Shareholders shall not apply to (i) any pledge of Stock made
pursuant to a bona fide loan transaction that creates a mere security interest
or (ii) any transfer to the ancestors, descendants or spouse or to trusts for
the benefit of such persons or a Founder; provided that (A) the transferring
Founder shall inform the Shareholders of such pledge or transfer prior to
effecting it and (B) the pledgee or transferee shall furnish the Shareholders
with a written agreement to be bound by and comply with all provisions of
Section 2. Such transferred Stock shall remain "Stock" hereunder, and such
pledgee or transferee shall be treated as a "Founder" for purposes of this
Agreement.
(b) Notwithstanding the foregoing, the provisions
of Section 2 shall not apply to the sale of any Stock (i) to the public
pursuant to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act") or (ii) to the Company.
4. Prohibited Transfers.
(a) In the event a Founder should sell any Stock
in contravention of the co-sale rights of the Shareholders under this agreement
(a "Prohibited Transfer"), the Shareholders, in addition to such other remedies
as may be available at law, in equity or hereunder, shall have the put option
provided below, and the Founder shall be bound by the applicable provisions of
such option.
(b) In the event of a Prohibited Transfer, each
Shareholder shall have the right to sell to the Founder the type and number of
shares of Stock equal to the number of shares each Shareholder would have been
entitled to transfer to the purchaser had the Prohibited Transfer under Section
2(c) hereof been effected pursuant to and in compliance with the terms thereof.
Such sale shall be made on the following terms and conditions:
(i) The price per share at which the
shares are to be sold to the Founder shall be equal to the price per share paid
by the purchaser to the Founder in the Prohibited Transfer. The Founder shall
also reimburse each Shareholder for any and all reasonable fees and expense,
including reasonable legal fees and expense, incurred pursuant to the exercise
or the attempted exercise of the Shareholder's rights under Section 2.
(ii) Within ninety (90) days after the
later of the dates on which the Shareholder (A) received notice of the
Prohibited Transfer or (B) otherwise become aware of the Prohibited Transfer,
each Shareholder shall, if exercising the option created hereby, deliver to the
Founder the certificate or certificates representing shares to be sold, each
certificate to be properly endorsed for transfer.
(iii) The Founder shall, upon receipt of
the certificate or certificates for the shares to be sold by a Shareholder,
pursuant to this Section 4(b), pay the aggregate purchase price therefor and
the amount of reimbursable fees and expense, as specified in Section 4(b)(i),
in cash or by other means acceptable to the Shareholder.
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<PAGE> 96
(iv) Notwithstanding the foregoing, any
attempt by a Founder to transfer Stock in violation of Section 2 hereof shall
be void and the Company agrees it will not effect such a transfer nor will it
treat any alleged transferee as the holder of such shares without the written
consent of a majority in interest of the Shareholders.
5. Legend.
(a) Each certificate representing shares of Stock
now or hereafter owned by the Founders or issued to any person in connection
with a transfer pursuant to Section 3(a) hereof shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE
SHAREHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF STOCK OF
THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
(b) Each Founder agrees that the Company may
instruct its transfer agent to impose transfer restrictions on the shares
represented by certificates bearing the legend referred to in Section 5(a)
above to enforce the provisions of this Agreement and the Company agrees to
promptly do so. The legend shall be removed upon termination of this
Agreement.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be
governed by and construed under the laws of the State of Delaware.
6.2 Amendment. Any provision may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only by the written
consent of (i) as to the Company, only by the Company, (ii) as to the
Shareholders, by persons holding more than fifty percent (50%) in interest of
the Common Stock and Common Stock equivalents then held by the Shareholders and
their assignees, pursuant to Section 6.3 hereof, and (iii) as to each Founder,
such Founder, provided that any Shareholder may individually waive any of his
rights hereunder without obtaining the consent of any other Shareholder. Any
amendment or waiver effected in accordance with clauses (i), (ii) and (iii) of
this paragraph shall be binding upon each Shareholder, its successors and
assigns, the Company and the Founder in question.
6.3 Assignment of Rights. This Agreement and the
rights and obligations of the parties hereunder shall inure to benefit of, and
be binding upon, their respective successors, assigns and legal
representatives. The rights of the Shareholders hereunder are only assignable
(i) by each of such Shareholders to any other Shareholder or
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<PAGE> 97
(ii) to an assignee or transferee who acquires all of the Common Stock
purchased by a Shareholder or at least 25,000 shares of Common Stock.
6.4 Term. This Co-Sale Agreement shall terminate
upon the earlier of (i) the closing of a firm commitment underwritten public
offering pursuant to a registration statement on Form S-1 under the Securities
Act of 1933, as amended, the public offering price of which (exclusive of
underwriting discounts, commissions and expenses) is not less than $4.00 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and $12,000,000 in the aggregate, and (ii) the closing of
the Company's sale of all or substantially all of its assets or the acquisition
of the Company by another entity by means of merger or consolidation resulting
in the exchange of the outstanding shares of the Company's capital stock for
securities or consideration issued, or caused to be issued, by the acquiring
entity or its subsidiary.
6.5 Ownership. Each Founder represents and
warrants that he is the sole legal and beneficial owner of the shares of stock
subject to this Co-Sale Agreement and that no other person has any interest
(other than a community property interest) in such shares.
6.6 Notices. All notices required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or five days after deposit in the
United States mail, by registered or certified mail, postage prepaid and
properly addressed to the party to be notified as set forth on the signature
page hereof or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties hereto. Notwithstanding the
foregoing, the telephone notice permitted by Section 2(d) shall be effective at
the time it is given.
6.7 Severability. In the event one or more of
the provisions of this Co-Sale Agreement should, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Co-Sale
Agreement, and this Co-Sale Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
6.8 Attorney Fees. In the event that any dispute
among the parties to this Co-Sale Agreement should result in litigation, the
prevailing party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Co-Sale Agreement, including without
limitation, such reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and expenses of
appeals.
6.9 Counterparts. This Co-Sale Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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<PAGE> 98
The foregoing agreement is hereby executed as of the date
first above written.
<TABLE>
<S> <C>
COMBICHEM, INC.
By:
-----------------------------------------
Title:
--------------------------------------
Address
-------------------------------------
----------------------------------
----------------------------------
SHAREHOLDERS:
---------------------------------------------
(Print Name of Investor)
---------------------------------------------
(Signature)
---------------------------------------------
(Title, if applicable)
Address
---------------------------------------------
---------------------------------------------
---------------------------------------------
</TABLE>
[SIGNATURE PAGE TO CO-SALE AGREEMENT]
<PAGE> 99
<TABLE>
<S> <C>
FOUNDERS:
------------------------------------------
(Print Name of Founder)
------------------------------------------
(Signature)
Address
------------------------------------------
------------------------------------------
------------------------------------------
</TABLE>
[SIGNATURE PAGE TO CO-SALE AGREEMENT]
<PAGE> 100
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Agreement and
that I know its contents. I am aware that by its provisions if I and/or my
spouse agree to sell all or part of the shares of the Company held of record by
either or both of us, including my community interest in such shares, if any,
co-sale rights (as described in the Agreement) must be granted to the
Shareholders by the seller. I hereby agree that those shares and my interest
in them, if any, are subject to the provisions of the Agreement and that I will
take no action at any time to hinder operation of, or violate, the Agreement.
------------------------------------------
(Signature)
<PAGE> 101
SCHEDULE OF EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
This Schedule of Exceptions is made and given pursuant to Article II
of the Series C Preferred Stock Purchase Agreement (the "Agreement"). The
section numbers in this Schedule of Exceptions correspond to the section
numbers in the Agreement; however, any information disclosed herein under any
section number shall be deemed to be disclosed and incorporated into any other
section number under the Agreement where such disclosure would otherwise be
appropriate. Any terms defined in the Agreement shall have the same meaning
when used in this Schedule of Exceptions as when used in the Agreement unless
the context otherwise requires.
Nothing herein constitutes an admission of any liability or obligation
on the part of CombiChem nor an admission against CombiChem's interest. The
inclusion of any schedule herein or any exhibit hereto should not be
interpreted as indicating that CombiChem has determined that such an agreement
or other matter is necessarily material to CombiChem. The Investors
acknowledge that certain information contained in these schedules may
constitute material confidential information relating to CombiChem which may
not be used for any purpose other than that contemplated in the Agreement.
<PAGE> 102
SCHEDULE 2.5
CAPITALIZATION AND VOTING RIGHTS
Certain investors of the Company are parties to assignment agreements
pursuant to which they have assigned the right to receive warrants issuable in
connection with the Series C Preferred Stock financing to other investors.
Schedule 2.5
<PAGE> 103
SCHEDULE 2.7
CONTRACTS AND OTHER COMMITMENTS
The Company is a party to the following agreements:
(a) (i) Torrey Pines Science Park Industrial Real Estate
Modified Gross Lease for 11025 N. Torrey Pines Road,
La Jolla, CA 92037 dated November 1, 1991.
(ii) Sublease for 11025 North Torrey Pines Road, La Jolla,
CA 92037 dated August 24, 1994 and September 1, 1994.
(iii) Sublease for 11025 N. Torrey Pines Road, La Jolla, CA
92037.
(iv) Industrial Lease for 1221 Innsbruck Drive, Sunnyvale,
CA dated December 7, 1992.
(v) Second Sublease for 1225 Innsbruck Drive, Sunnyvale,
CA and draft of Addendum No. 1.
(vi) 11099 N. Torrey Pines Road, Suite 200, La Jolla,
California Lease dated March 15, 1995 between Health
Science Properties, Inc. and the Company.
(vii) See (e)(iv) and (v) below.
(viii) Pursuant to that certain Agreement dated August 4,
1995 among the Company, Molecular Simulations
Inc.("MSI") and Entropix Corporation, the Company is
obligated to make the following cash payments on or
before December 31, 1995: (A) $100,000 and (B) at the
sole discretion of MSI, either (i) a cash payment in
an amount equal to $140,000 or (ii) 225,807 shares of
Series Z Preferred Stock. In addition, the Company
issued a promissory note to MSI for $300,000 payable
June 15, 1996 in cash, or at the Company's option, by
issuing 100,000 shares of Series Z Preferred Stock.
(ix) In connection with the execution of the Agreement
with MSI described in (viii) above and pursuant to a
License Agreement dated August 4, 1995 between the
Company and MSI ("MSI License Agreement"), the
Company agreed to pay to MSI royalties equal to: (A)
in connection with the sale of a single product, the
lesser of 5% of net sales of such product or $25,000;
(B) in connection with the sale of more than one
product in a single transaction, the sum of (I) with
respect to the first product included in such
transaction, the lesser of 5% of net sales of such
product or $25,000 and (II) with respect to the
additional products, a flat royalty of $5,000 per
additional product; or (C) in connection with a
collaboration or contract research project, the
lesser of 2% of net sales for such collaboration or
contract research project or $100,000. The maximum
aggregate royalties payable under the agreement is
$5.0 million.
(x) Certain employees have arrangements with the Company
pursuant to which severance payments would be made
following their termination of employment in certain
circumstances. No such payments are currently being
made.
(xi) Pursuant to the Sublicense Agreement dated July 20,
1995 between the Company and Johnson & Johnson (the
"J&J Sublicense"), the Company is required to make
(A) aggregate payments of $100,000 (subject to
certain
Schedule 2.7
<PAGE> 104
time and performance milestones), (B) an additional
royalty of 1% of monetary compensation received in
connection with a further sublicense of rights under
the Agreement and (C) earned royalties 10% of net
sales value of products sold under the agreement by
the Company or affiliates or 10% of the royalty or
other income received by the Company from sublicensee
or third parties in consideration of granting of
further sublicenses.
(xii) See (c)(iii) below.
(b) (i) Preferred Stock Purchase Agreement (600,000 Shares of
Series A Preferred Stock) dated August 26, 1994
between the Company and Forward Ventures II, L.P.
(ii) Common Stock Purchase Agreement (225,000 Shares of
Common Stock) dated September 28, 1994 between the
Company and Forward Ventures II, L.P.
(iii) Preferred Stock Purchase Agreement (200,000 Shares of
Series Z Preferred Stock) dated October 12, 1994
between the Company and Dr. Sydney Brenner.
(iv) Stock Purchase Agreement Preferred and Common
(400,000 Shares of Series A Preferred Stock and
100,000 Shares of Common Stock) dated November 1,
1994 among the Company, Sequoia Capital VI, Sequoia
Technology Partners VI and Sequoia XXIV.
(v) Stock Purchase Agreement Series B Preferred dated
November 29, 1994 among the Company, Sequoia Capital
VI, Sequoia Technology Partners VI, Sequoia XXIV and
Forward Ventures II, L.P.
(vi) Stock Purchase Agreement (Series B Preferred) dated
January 15, 1995 between the Company and Lynn H.
Caporale, Ph.D.
(vii) Common Stock Purchase Agreement dated March 20, 1995
between the Company and The Scripps Research
Institute, as amended through the date hereof.
(viii) The Company is party to the following Common Stock
Purchase Agreements:
<TABLE>
<CAPTION>
AMOUNT OF
NAME DATE SHARES
<S> <C> <C>
Kim D. Janda 09/28/94 175,000
Chi-Huey Wong 09/28/94 150,000
Dale L. Boger 09/28/94 150,000
Eric Erb 09/28/94 10,000
Standish Fleming 09/28/94 37,500
Trustee of Royston Family Trust UTA 09/28/94 37,500
2/12/82
</TABLE>
Schedule 2.7
<PAGE> 105
<TABLE>
<CAPTION>
AMOUNT OF
NAME DATE SHARES
<S> <C> <C>
Sydney Brenner 09/28/94 150,000
Jeffrey Sollender 09/28/94 10,000
Robert A. Curtis 10/18/94 500,000
Gail Erwin 10/18/94 2,500
Lynn H. Caporale 11/08/94 175,000
Bobbie J. Bosley 11/18/94 10,000
Eric D. Erb 01/01/95 5,000
Angelo J. Castellino 01/19/95 20,000
Peter A. Bick 01/23/95 20,000
Soan Cheng 01/23/95 20,000
Daniel C.M. Sun 01/30/95 10,000
Gail Erwin 02/06/95 40,000
Christine M. Tarby 04/24/95 14,000
Peter Myers 3/1/95 350,000
Steve Teig 6/2/95 200,000
Jonathon Greene 6/3/95 100,000
</TABLE>
(ix) See (a) (viii) above.
(x) The Company intends to enter into Series J Option
Agreements with each of Steven Teig, Jonathan Greene
and Andrew Smellie, pursuant to which an aggregate of
465,000 shares of Series J Preferred Stock may be
issued.
(xi) The Company had previously entered into (A) that
certain Amended and Restated Stock Registration
Rights Agreement dated November 1, 1994, as amended
on November 29, 1994, January 15, 1995 and March 20,
1995 and (B) that certain Stock Registration Rights
Agreement dated October 12, 1994 which granted to
certain investors registration rights. These
agreements are being terminated pursuant to
Investors' Rights Agreement.
(xii) Warrant Agreement with Comdisco, Inc., dated December
20, 1994
(xiii) Pursuant to a consulting agreement with Ken
Rubenstein pursuant to which Mr. Rubenstein receives
1,000 shares of the Company's common stock for each
month in which he performs consulting services.
(xiv) The Company has granted an aggregate of 50,000
options to certain employees and consultants pursuant
to which up to an aggregate of 50,000 shares of
common stock may be issued.
Schedule 2.7
<PAGE> 106
(c) (i) Convertible Revolving Promissory Notes dated June 15,
1995 in favor of Sequoia Capital VI, Sequoia
Technology Partners, Sequoia XXIV, Forward Ventures
in the aggregate amount of $500,000.
(ii) Convertible Revolving Promissory Notes dated July 20,
1995 in favor of Sequoia Capital VI, Sequoia
Technology Partners, Sequoia XXIV, First Interstate
Bank as Trustee for SK International Securities
Corporation 401(k) Profit Sharing Plan EM Stephen J.
Kandel TR#508263200, Dr. Michael Grossman, Rollover
IRA and Steven Lash in the aggregate amount of
$250,000 as of Closing (with an additional $250,000
available).
(iii) Master Lease Agreement with Comdisco, Inc.
("Comdisco") dated November 16, 1994
(iv) See (a)(viii) above.
(d) (i) The Company is party to employment agreements with
the following individuals: Eric Erb; Robert A.
Curtis; Lynn H. Caporale; Peter Myers; Jonathan
Greene; Steven Teig; and Andrew Smellie. In
addition, the Company is a party to offer letters
and/or memoranda with the following employees in
which certain terms and conditions of the employee's
employment are set forth: Jeffrey D. Sollender;
Bobbie Bosley; Daniel C. M. Sun; Angelo J.
Castellino; Soan Cheng; Gail Erwin; Christine Tarby;
Martha Salkin; Kevin Wheeler; and John Williams.
(ii) The Company is a party to the following consulting
agreements: Dale L. Boger (dated 05/01/94); Eric Erb
(dated 07/01/94); Kim D. Janda (dated 08/09/94);
Sydney Brenner (dated 08/10/94); Chi-Huey Wong (dated
08/11/94); Sue Ann Latterman (dated 12/23/94); and
Ken Rubenstein (dated 2/4/95). The Company is
negotiating a consulting agreement with Mark Edwards.
The Company entered into a letter agreement dated
July 25, 1995 with Transpect Incorporated
("Transpect") pursuant to which Transpect is retained
as an advisor and consultant with respect to the
establishment of a relationship with Daiichi
Pharmaceutical Co., Ltd (or any company mutually
agreed to).
(e) (i) Agreement for Purchase and Sale of Assets dated
September 28, 1994 among the Company, Combichem,
Inc., a Delaware corporation, KPCB VI and KPCB IV-FF.
(ii) License Agreement with The Scripps Research Institute
("Scripps License")
(iii) Assignments of Dr. Sydney Brenner
(iv) Letter of Intent - R&D Collaboration and
Manufacturing and Supply Agreement with LJL
Biosystems, Inc. dated March 15, 1995 as amended June
1, 1995
(v) Letter to LJL Biosystems, Inc. detailing revised
payment schedule for COMBISYN 100 program dated July
21, 1995
(vi) See (a)(ix) above.
(vii) Sublicense Agreement dated July 20, 1995 between the
Company and Johnson & Johnson.
(viii) Option Agreement with The Scripps Research Institute
("Scripps Option").
Schedule 2.7
<PAGE> 107
(f) The Company intends to enter into indemnification agreements
with each of the directors of the Company following the
Closing. In addition, other agreements listed in this
Schedule of Exceptions or to be entered into in connection
with the Closing may contain indemnification provisions.
(i) None
(ii) See (a) above.
(iii) The Company currently has a commitment to make relocation
loans to the following employees in the following principal
amounts: Robert A. Curtis ($150,000) and Peter Myers
($150,000). None of such loans is outstanding.
(iv) See (a)(viii) and (a)(ix) above.
In connection with the MSI transaction discussed above and in addition
to the agreements noted above, the Company also entered into a separate License
Agreement (pursuant to which it obtained a license to certain MSI products), an
Acknowledgement and General Release (pursuant to which the operation of certain
sections of Mr. Teig's prior contracts with MSI were waived and the Company and
Mr. Teig were released from claims arising out of such released sections of the
contracts).
The sale of shares of Series C Preferred Stock in the proposed
financing will result in a change of ownership of greater than 50% of the
voting power of the Company prior to the Closing.
The Company has performed all obligations and conditions required to
be performed or met by it through the date hereof under each of the Scripps
License and Scripps Option. The Scripps License is in full force and effect as
of the date hereof. The Scripps Option has not been exercised, as of the date
of the Closing. The Company will use its best efforts not to waive any rights
of the Company under the Scripps License or Scripps Option, without the consent
of a majority of the outstanding shares of Series C Preferred Stock (and shares
of the Company's capital stock issuable upon exchange or conversion of the
Series C Preferred Stock).
Schedule 2.7
<PAGE> 108
SCHEDULE 2.8
RELATED-PARTY TRANSACTIONS
The Company is indebted to certain venture capital funds affiliated
with directors pursuant to the Convertible Revolving Promissory Notes dated
June 15, 1995 and the Convertible Revolving Promissory Notes dated July 20,
1995 (collectively, the "Notes"). All accrued interest and outstanding
principal due under the Notes will be converted into shares of Series C
Preferred Stock in connection with the Closing, except interest and principal
owing to Forward Ventures II, L.P. which will be paid in full from the proceeds
of the offering.
Venture capital funds affiliated with directors participated in the
Company's prior rounds of financing and will participate in the Series C
Preferred Stock financing. Such directors may engage in the development and
financing of other companies and/or research projects which may be developing,
or may in the future develop, products which may compete directly, or
indirectly, with the products intended to be developed by the Company.
The Company currently has a commitment to make relocation loans to the
following employees in the following principal amounts: Robert A. Curtis
($150,000) and Peter Myers ($150,000). None of such loans is outstanding.
Schedule 2.8
<PAGE> 109
SCHEDULE 2.9
REGISTRATION RIGHTS
The registration rights in place prior to the closing with respect to
shares of Common Stock issuable upon exercise of Series A Preferred Stock,
Series B Preferred Stock and Dr. Brenner's shares of Series Z Preferred Stock
will be replace with the registration rights set forth in the Investors' Rights
Agreement.
The Company is obligated to register shares of Common Stock issuable
upon conversion of Series Z Preferred Stock issuable upon exercise of warrants
issued (or to be issued) in connection with the Company's equipment lease line.
Schedule 2.9
<PAGE> 110
SCHEDULE 2.10
PERMITS
The Company has completed its initial inspection by the Fire Marshall.
Another inspection is scheduled to occur in the next month, following which a
permit will be issued assuming compliance with all applicable rules and
regulations.
Schedule 2.10
<PAGE> 111
SCHEDULE 2.15
TITLE TO PROPERTY AND ASSETS; LEASES
Under the terms of the Company's agreement with Comdisco, Comdisco
retains all rights to the equipment purchased under such lease, with the
Company having an option to purchase at the completion of the term of the
agreement.
Schedule 2.15
<PAGE> 112
SCHEDULE 2.16
FINANCIAL STATEMENTS
The Company has entered into the agreements with MSI and Johnson &
Johnson since June 30, 1995. In addition, the Company has incurred
substantially all of the aggregate indebtedness under the Convertible Revolving
Promissory Notes since June 30, 1995.
The employee relocation loan commitments are not reflected on the June
30, 1995 financial statements. In addition, the contingent severance payments
due under certain employment arrangements with the Company's employees are not
reflected on the June 30, 1995 financial statements.
Schedule 2.16
<PAGE> 113
SCHEDULE 2.18
PATENTS AND TRADEMARKS
A list of pending patent applications is attached hereto as Exhibit A
to Schedule 2.18.
The Company filed an intent to use application with the United States
Patent and Trademark Office ("PTO") to register the mark COMBICHEM on February
26, 1993 in Class 42 for the services of combinatorial chemistry and molecular
biology research and analysis. The application was inadvertently abandoned and
a petition to revive the application, filed on June 14, 1995 with the PTO is
now pending. The Company filed a duplicate application on June 5, 1995 in the
event that the petition to revive is denied. This application is now pending.
The Company filed an intent to use application to register the mark
COMBICHEM on November 15, 1994 in Class 5 for pharmaceuticals and chemical
compounds. An Office Action has been issued by the PTO citing two prior
applications that may be confusingly similar to COMBICHEM if either of these
applications matures into a registration. A response to the Office Action is
due on October 27, 1995.
An intent to use application for the mark COMBISYN was filed by the
Company on February 13, 1995 and is now pending. The application was filed in
Class 9 for scientific apparatus for use in synthesizing by combinatorial
chemistry small molecules for use in scientific research.
In connection with the MSI License Agreement, the Company received
certain licenses to use MSI proprietary technology and granted to MSI an
exclusive option to negotiate a distribution agreement with respect to a
stand-alone chemical diversity measure software program.
The J&J Sublicense contains a grant-back of a non-exclusive
irrevocable royalty-free license (with the right to sublicense affiliates)
under all patent improvements for the term of the agreement.
Schedule 2.18
<PAGE> 114
SCHEDULE 2.19
MANUFACTURING AND MARKETING RIGHTS
Pursuant to the MSI License Agreement, the Company has granted to MSI
an exclusive option to negotiate a distribution agreement with respect to a
stand-alone chemical diversity measure software program.
LJL Biosystems, Inc. is preparing test models of certain of the
Company's products.
Schedule 2.19
<PAGE> 1
EXHIBIT 10.6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of September 7,
1995 by and between CombiChem, Inc., a California corporation (the "Company")
and Todd Schmidt, an individual resident of the State of California (the
"Purchaser").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Sale of Series C Preferred Shares. Subject to the terms and
conditions of this Agreement, the Purchaser hereby purchases, and the Company
hereby sells to the Purchaser, 8,065 shares of the Company's Series C Preferred
Stock (the "Shares") in consideration and for services previously rendered by
the Purchaser to the Company (the "Purchase Price"). The Purchaser and the
Company each agree that the consideration paid to the Company by the Purchaser
has a fair market value on the Closing Date of $5,000 in the form of services
rendered.
2. Closing. The purchase and sale of the Shares shall take place at the
offices of the Company, simultaneous with the execution of this Agreement, or at
such other place and time as the Company and the Purchaser shall mutually agree,
either orally or in writing (the "Closing"). At the Closing, subject to the
terms and conditions hereof, the Company shall deliver to the Purchaser a
certificate, registered in the name Purchaser designates by notice to the
Company, representing the Shares to be purchased by the Purchaser from the
Company, dated the date of the Closing.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows:
(a) Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
the Company's obligations under this Agreement, and for the authorization,
issuance, sale and delivery of the Shares has been taken or will be taken prior
to the Closing. This Agreement, when executed and delivered by the Company and
the Purchaser shall constitute a valid and legally binding obligation of the
Company, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors.
4. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows:
(a) Authorization. The Purchaser has the requisite legal power
and authority to enter into this Agreement and that this Agreement when executed
shall constitute a valid and legally binding obligation of the Purchaser.
<PAGE> 2
(b) Investment Intent. This Agreement is made with the Purchaser
in reliance upon his representation to the Company, which by its execution
hereof he confirms, that the Shares have been acquired with his own property for
investment for an indefinite period for his own account, not as a nominee or
agent, and not with a view to the sale or distribution of any part thereof, and
that Purchaser has no present intention of selling, granting participation in,
or otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that he does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participations, to such
person or to any third person, with respect to any of the Shares.
(c) Reliance Upon the Purchaser's Representations. The Purchaser
understands (i) that the Shares are not registered under the Securities Act of
1933, as amended (the "Securities Act") or qualified under the California
Corporate Securities Law of 1968, as amended (the "Law"), and (ii) that the
Shares are being issued to the Purchaser on the ground that the sale provided
for in this Agreement and the issuance of securities hereunder is exempt from
registration under the Securities Act pursuant to Section 4(2) thereof and/or
Regulation D promulgated thereunder and the exemption from qualification
provided by Section 25102(f) of the Law, and (iii) that the Company's reliance
on such exemptions is predicated on the Purchaser's representations set forth
herein. The Purchaser realizes that the basis for the exemptions may not be
present if, notwithstanding such representations, the Purchaser has in mind
merely acquiring the Shares for a fixed or determinable period in the future, or
for a market rise, or for sale if the market does not rise. The Purchaser does
not have any such intention. These exemptions only exempt the issuance of the
Shares to the Purchaser and not any sale or other disposition of the Shares or
any interest therein by the Purchaser.
(d) Restricted Securities. The Purchaser hereby confirms that the
Purchaser has been informed that the Shares are restricted securities under the
Securities Act and may not be resold or transferred unless the Shares are first
registered under the Federal securities laws or unless an exemption from such
registration is available. In addition, the Purchaser understands that any
resale or transfer must comply with applicable state securities laws.
Accordingly, the Purchaser hereby acknowledges that the Purchaser is prepared to
hold the Shares for an indefinite period, and that the Purchaser is familiar
with the provisions of Rule 144 of the Securities and Exchange Commission issued
under the Securities Act, and is aware that Rule 144 is not presently available
to exempt the sale of the Shares from the registration requirements of the
Securities Act.
(e) Receipt of Information. The Purchaser acknowledges that he
has received all the information he considers necessary or appropriate for
deciding whether to purchase the Shares. The Purchaser further represents that
he has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Shares and the
business, properties, prospects, and financial condition of the Company and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort
-2-
<PAGE> 3
or expense) necessary to verify the accuracy of any information furnished to
Purchaser or to which Purchaser had access.
(f) Investment Experience. In connection with representations
made herein, the Purchaser represents that he has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of his investment, has the ability to bear the economic risks of his
investment and has been furnished with and has had access to all of the
information he considers necessary or appropriate to evaluate the risks and
merits of an investment in the Shares, and he had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management.
(g) Limitations on Disposition. The Purchaser agrees that in no
event will he make a disposition of any of the Shares, unless and until (i) he
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (ii) he shall have furnished the Company with an
opinion of counsel satisfactory to the Company to the effect that (a) such
disposition will not require registration of such Shares under the Securities
Act, or (b) that appropriate action necessary for compliance with the Securities
Act has been taken, or (iii) the Company shall have waived, expressly and in
writing, its rights under clauses (i) and (ii) of this subparagraph. The opinion
shall also indicate that the disposition is exempt from, in compliance with, or
qualified under all applicable state securities laws.
(h) Public Sale. The Purchaser agrees not to make, without the
prior written consent of the Company, any public offering or sale of the Shares,
even if permitted to do so pursuant to Rule 144(k) promulgated under the
Securities Act, until the earlier of (i) six months after the date on which the
Company effects its initial registered public offering pursuant to the
Securities Act or (ii) five years after the date of the Closing of this
Agreement.
(i) Legends. All certificates representing any shares of the
Company subject to the provisions of this Agreement shall have endorsed thereon
customary legends regarding:
(1) Restrictions on transfer under the Securities Act.
(2) Any legend required by state securities laws.
5. Market Stand-Off Agreement. The Purchaser hereby agrees that, during
the period of duration specified by the Company and an underwriter of common
stock or other securities of the Company, following the effective date of an
initial registration statement of the Company filed under the Securities Act, it
shall not, to the extent requested by the Company and such underwriter, directly
or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be
-3-
<PAGE> 4
similarly bound) any securities of the Company held by it at any time during
such period except common stock included in such registration; provided,
however, that:
(a) such agreement shall not exceed 180 days for the
first such registration statement of the Company which covers common stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering; and
(b) such agreement shall not exceed 90 days for any
subsequent registration statement of the Company which covers common stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering.
In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Shares of the
Purchaser (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
6. Miscellaneous.
(a) Further Assurances. Each of the parties hereby agrees to
execute and deliver such other documents and to take such further actions as may
reasonably be requested by the other party in order to consummate the
transactions contemplated herein or to carry out the intent of this Agreement.
(b) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at his
address hereinafter shown below his signature or at such other address as such
party may designate by advance written notice to the other party hereto.
(c) Governing Law. This Agreement has been negotiated, executed
and delivered in the State of California. The parties hereto agree that all
questions pertaining to the validity and interpretation of this Agreement shall
be determined in accordance with the laws of the State of California.
(d) Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon the Purchaser, his successors and
assigns.
(e) Amendments and Waivers. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all previous understandings, written or oral. This Agreement may only
be amended with the written consent of the parties hereto, or the successors or
assigns of the foregoing, and no oral waiver or amendment shall be effective
under any circumstances whatsoever.
-4-
<PAGE> 5
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same Agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
(g) Severable Provisions. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be judicially
unenforceable, in whole or in part, the remaining provisions shall nevertheless
be binding and enforceable.
(h) Separate Counsel. The Purchaser acknowledges and agrees that
Brobeck, Phleger & Harrison represents solely the Company and has not
represented his interests and that the Purchaser has been provided the
opportunity and encouraged to consult with counsel of the Purchaser's own
choosing with respect to this Agreement. The Purchaser certifies and
acknowledges that the Purchaser has carefully read all of the provisions of this
Agreement and that the Purchaser fully understands and shall fully and
faithfully comply with such provisions.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
COMBICHEM, INC.,
a California corporation
By: /s/ Pierre Lamond
----------------------------------
Title: Chairman
-------------------------------
Address: 9050 Camino Santa Fe
San Diego, California 92121
PURCHASER:
/s/ Todd Schmidt
-------------------------------------
Todd Schmidt
Address: 20740 Elfin Forest Road
Escondido, CA 92029
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE> 1
EXHIBIT 10.7
SUPPLEMENTAL PURCHASE AGREEMENT
THIS SUPPLEMENTAL PURCHASE AGREEMENT ("Agreement") is made as of April
8, 1996 by and among CombiChem, Inc., a California corporation (the "Company")
and the investors listed on the Schedule of Investors attached as Schedule A
hereto (the "Schedule of Investors"), each of which is herein referred to as a
"Investor." Capitalized terms used herein which are not defined herein shall
have the same meaning ascribed to them in the First Closing Agreement (as
defined herein below) and all references to any section number used herein
shall be deemed to be references to sections of this Agreement, unless
otherwise stated.
RECITAL
A. The Company entered into a certain Series C Preferred Stock
Purchase Agreement (the "First Closing Agreement") on August 17, 1995, by and
among the Company and the investors listed on Schedule A thereto.
B. Pursuant to the First Closing Agreement, each Investor has an
obligation to purchase the number of shares set forth opposite such Investors
name on the Schedule of Investors upon the achievement by the Company of the
Milestones on or before March 31, 1996.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Achievement of Milestones. By their signatures herein, the
Investors indicate their intent to proceed with the Second Closing pursuant to
Section 1.2.2(b) of the the First Closing Agreement on or about April 8, 1996.
2. Sale and Issuance of Series C Preferred Stock. Each Investor
agrees, severally and not jointly, to purchase at the Second Closing (as
defined herein below) and the Company agrees to sell and issue to each
Investor, severally and not jointly, at the Second Closing (as defined herein
below), that number of shares of the Company's Series C Preferred Stock set
forth opposite each Investor's name on the Schedule of Investors at a price of
$0.62 per share.
3. Second Closing. Such purchase and sale shall take place on
April 8, 1996 at 11:00 A.M. (the "Second Closing Date"), at the offices of
Brobeck, Phleger & Harrison, 550 West C Street, San Diego, California, or at
such time and place as the Company and the Investors agree (the "Second
Closing"). At the Second Closing, the Company will deliver to each Investor a
certificate representing the Series C Preferred Stock which such Investor is
purchasing as specified in the Schedule of Investors against payment of the
purchase price therefor, by check or wire transfer payable to the Company.
<PAGE> 2
4. Representations and Warranties of the Company. The Company
hereby represents and warrants to each Investor that, except as set forth on
the Supplemental Schedule of Exceptions, dated as of April 8, 1996, attached
hereto as Exhibit A, the representations and warranties of the Company
contained in Section 2 of the First Closing Agreement are true and accurate as
of the Second Closing; provided, however, that (i) the term "Financial
Statements" as used in Section 2 of the First Closing Agreement, for the
purposes of the Second Closing, shall mean with respect to the representations
and warranties made hereunder the Company's audited financial statements
(balance sheet and profit and loss statement, statement of stockholders' equity
and statement of changes in financial position including notes thereto) at
December 31, 1995 and for the fiscal year then ended and its unaudited
financial statements (balance sheet and profit and loss statement including
notes thereto) as at and for the two-month period ended February 29, 1996 and
(ii) all references to the date June 30, 1995 contained in Section 2 of the
First Closing Agreement, for purposes of the Second Closing, shall be deemed to
be references to February 29, 1996.
5. Covenants of the Company. So long as any shares of Preferred
Stock are outstanding, the Company shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of a
majority of the shares of Preferred Stock then outstanding:
5.1.1 change the authorized number of directors to be
other than between five (5) and nine (9); or
5.1.2 put into place or effect any acceleration of vesting of
stock options or waiver of repurchase rights with respect to stock beneficially
held by an employee or consultant of the Company, each in the event of a sale
of all or substantially all of the assets of the Company, a merger of the
Company with or into another entity or a liquidation of the Company.
6. Representations and Warranties of the Investor. As of the
Second Closing, each Investor makes the representations and warranties to the
Company set forth in Section 3 of the First Closing Agreement.
7. Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS
EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
-2-
<PAGE> 3
8. Conditions of Investor's Obligations at Second Closing. The
obligations of the Investors under Section 2 of this Agreement are subject to
the fulfillment on or before the Second Closing of each of the following
conditions:
a. Representations and Warranties. The representations
and warranties of the Company contained in Section 4 hereof and in Section 2 of
the First Closing Agreement shall be true on and as of the Second Closing with
the same effect as though such representations and warranties had been made on
and as of the Second Closing.
b. Performance. The Company shall have performed and
complied with all agreements, obligations, covenants and conditions contained
in this Agreement that are required to be performed or complied with by it on
or before the Second Closing.
c. Compliance Certificate. The President of the Company
shall deliver to each Investor at the Second Closing a certificate certifying
that the conditions specified in Sections 8(a), 8(b) and 8(d) hereof have been
fulfilled.
d. Qualifications. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Series C Preferred Stock pursuant to this Agreement shall be
duly obtained and effective as of the Second Closing.
e. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Second
Closing and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Investors' special counsel, which shall have received
all such counterpart original and certified or other copies of such documents
as it may reasonably request.
f. Opinion of Company Counsel. Each Investor shall have
received from Brobeck, Phleger & Harrison LLP, counsel for the Company, an
opinion, dated the date of the Second Closing, in form and substance
satisfactory to special counsel to the Investors.
9. Conditions of the Company's Obligations at Second Closing.
The obligations of the Company to each Investor under this Agreement are
subject to the fulfillment on or before the Second Closing of each of the
following conditions by that Investor:
a. Representations and Warranties. The representations
and warranties of the Investor contained in Section 6 hereof and in Section 3
of the First Closing Agreement shall be true on and as of the Second Closing
with the same effect as though such representations and warranties had been
made on and as of the Second Closing.
b. Qualifications. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Series C Preferred Stock pursuant to this Agreement shall be
duly obtained and effective as of the Second Closing.
10. Miscellaneous.
-3-
<PAGE> 4
a. Rights of Shares. Except as otherwise set forth in
this Agreement, this Second Closing shall be deemed to have been made under the
First Closing Agreement, and the shares of Series C Preferred Stock purchased
hereunder shall receive the same rights and be subject to the same obligations
under the First Closing Agreement, that certain Investors' Rights Agreement
dated August 17, 1995 and the Co- Sale Agreement dated August 17, 1995, as the
shares of the Series C Preferred Stock purchased pursuant to the First Closing
Agreement, except as otherwise expressly set forth in such agreements.
b. Survival of Warranties. The warranties,
representations and covenants of the Company and Investors contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Second Closing.
c. Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Series C Preferred Stock sold hereunder
or any Common Stock issued upon conversion thereof). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
d. Governing Law. This Agreement shall be governed by
and construed under the laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California.
e. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
f. Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
g. Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery to the party to be notified
by hand or professional courier service or five days after deposit with the
United States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party
on the signature page hereof, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
h. Finder's Fee. Each party represents that it neither
is nor will be obligated for any finders' fee or commission in connection with
this transaction.
Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and
-4-
<PAGE> 5
expenses of defending against such liability or asserted liability) for which
the Investor or any of its officers, partners, employees, or representatives is
responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders'
fee (and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
i. Expenses. Irrespective of whether the Second Closing
is effected, the Company shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. If the Second Closing is effected, the Company shall, at the Second
Closing, reimburse the reasonable fees of special counsel for the Investors
which are anticipated to be approximately $3,500 and shall, upon receipt of a
bill therefor, reimburse out-of-pocket expenses of such counsel incurred in
connection with the Second Closing.
j. Attorney's Fees. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
k. Amendments and Waivers. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
more than 50% of the Common Stock (that has not been sold to the public) issued
or issuable upon conversion of the Series C Preferred Stock. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), each
future holder of all such securities and the Company.
l. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
m. Exculpation Among Investors. Each Investor
acknowledges that it is not relying upon any person, firm or corporation, other
than the Company and its officers and directors, in making its investment or
decision to invest in the Company. Each Investor agrees that no Investor nor
the respective controlling persons, officers, directors, partners, agents or
employees of any Investor shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Series C Preferred Stock (and Common Stock issued upon conversion thereof).
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Series A
Preferred Stock Purchase Agreement as of the date first above written.
COMBICHEM, INC.
By: /s/ Vicente Anido
--------------------------------
Vicente Anido, President
INVESTORS:
SPROUT CAPITAL VII, L.P.
By: DLJ Capital Corporation
Managing General Partner
By: /s/ Philippe Chambon
-------------------------------
Title: Attorney in Fact
----------------------------
Address: 3000 Sand Hill Road, 4-270
Menlo Park, CA 94025
DLJ CAPITAL CORPORATION
By: /s/ Philippe Chambon
---------------------------------
Title: Attorney in Fact
------------------------------
Address: 3000 Sand Hill Road, 4-270
Menlo Park, CA 94025
[SIGNATURE PAGE TO
SUPPLEMENTAL PURCHASE AGREEMENT]
<PAGE> 7
SOFINNOVA VENTURES III L.P.
By: /s/ Alix Marduel, M.D.
-------------------------------
Title: General Partner
---------------------------
Address: One Market Plaza, Steuart Tower
Suite 2630
San Francisco, CA 94105
SEQUOIA CAPITAL VI
By: /s/ Pierre Lamond
-------------------------------
Title: General Partner
-----------------------------
Address: 3000 Sand Hill Road,
Building 4, Suite 280
Menlo Park, CA 94025
SEQUOIA TECHNOLOGY PARTNERS VI
By: /s/ Pierre Lamond
--------------------------------
Title: General Partner
-----------------------------
Address: 3000 Sand Hill Road,
Building 4, Suite 280
Menlo Park, CA 94025
SEQUOIA 1995
By: /s/ Pierre Lamond
--------------------------------
Title: General Partner
----------------------------
Address: 3000 Sand Hill Road,
Building 4, Suite 280
Menlo Park, CA 94025
[SIGNATURE PAGE TO
SUPPLEMENTAL PURCHASE AGREEMENT]
<PAGE> 8
SINGAPORE BIO-INNOVATIONS PTE LTD
By: /s/ illegible
-------------------------------
Title: Director/General Manager
----------------------------
Address: 250 North Bridge Road #24-00
Raffles City Tower
Singapore 0617
/s/ Byron T. Franzen
-----------------------------------
BYRON T. FRANZEN
Address: 610 C Street, N.E.
Washington, D.C. 20002
IRA FBO BYRON T. FRANZEN
/s/ Belinda Faulkner for DLJSC
-------------------------------
By: Belinda Faulkner for DLJSC
Title: Custodian
Address: One Pershing Plaza
Jersey City, NJ 07399
M. L. LAWRENCE REVOCABLE TRUST
/s/ Rebecca Wood
-------------------------------
By: Rebecca Wood
Title: Trustee
Address: Corporate Office
1500 Orange Avenue
Coronado, CA 92118
[SIGNATURE PAGE TO
SUPPLEMENTAL PURCHASE AGREEMENT]
<PAGE> 9
FARLEY INC.
By: /s/ Michael Bogaelie
--------------------------------
Title: Vice President & Controller
-----------------------
Address: 233 South Wacker Drive, Suite 5000
Chicago, IL 60606
SORRENTO VENTURES II, L.P.
By: /s/ Robert M. Jaffe
--------------------------------
President, Sorrento Associates,
Inc. General Partner, Sorrento
Equity Partners, L.P.
Title: General Partner, Sorrento
Ventures II, L.P.
------------------------------
Address: 4225 Executive Square, Suite 1450
San Diego, CA 92037
SORRENTO GROWTH PARTNERS I, L.P.
By: /s/ Robert M. Jaffe
--------------------------------
President, Sorrento Growth, Inc.
General Partner, Sorrento Equity
Growth Partners, I L.P.
Title: General Partner, Sorrento
Growth Partners I, L.P.
---------------------------
Title:
-----------------------------
Address: 4225 Executive Square, Suite 1450
San Diego, CA 92037
COMDISCO, INC.
By: /s/ Jill C. Hanses
---------------------------------
Title: Assistant Vice President
------------------------------
Address: 6111 N. River Road
Rosemont, IL 60018
[SIGNATURE PAGE TO
SUPPLEMENTAL PURCHASE AGREEMENT]
<PAGE> 10
BRINSON VENTURE CAPITAL FUND III, L.P.
By: Its General Partner,
Brinson Partners, Inc.
By: /s/ Terry Gould
----------------------------
Title: Partner, Brinson Partners, Inc.
-------------------------------
Address: 209 S. LaSalle Street, Suite 114
Chicago, IL 60604-1295
BRINSON TRUST COMPANY AS TRUSTEE
OF THE BRINSON MAP
VENTURE CAPITAL FUND III
By: /s/ Terry Gould
--------------------------------
Title: Assistant Trust Officer,
Brinson Trust Company
----------------------------
Address: 209 S. LaSalle Street, Suite 114
Chicago, IL 60604-1295
[SIGNATURE PAGE TO
SUPPLEMENTAL PURCHASE AGREEMENT]
<PAGE> 11
SCHEDULE A
SCHEDULE OF INVESTORS
SECOND CLOSING
<TABLE>
<CAPTION>
NUMBER OF SHARES OF SERIES CASH PURCHASE PRICE FOR
C PREFERRED STOCK TO BE SHARES OF SERIES C PREFERRED
NAME OF INVESTOR PURCHASED STOCK
---------------- ------------
<S> <C> <C>
Sprout Capital VII, L.P. 1,340,066 $830,840.92
DLJ Capital Corporation 111,547 $69,159.14
Sofinnova Ventures III, L.P. 483,871 $300,000.02
Singapore Bio-Innovations Ptd, Ltd 241,936 $150,000.32
Sequoia Capital VI 572,420 $354,900.40
Sequoia Technology Partners VI 31,452 $19,500.24
Sequoia XXIV 25,162 $15,600.44
Byron T. Franzen 24,194 $15,000.28
IRA FBO Byron T. Franzen 48,388 $30,000.56
M.L. Lawrence Revocable Trust 96,775 $60,000.50
Farley Inc. 362,904 $225,000.48
Sorrento Ventures II, L.P. 241,936 $150,000.32
Sorrento Growth Partners I, L.P. 483,871 $300,000.02
Comdisco, Inc. 72,581 $45,000.22
Brinson Venture Capital Fund III, L.P. 832,046 $515,868.52
Brinson Trust Company as Trustee of 135,696 $84,131.52
the Brinson MAP Venture Capital
Fund III
TOTALS: 5,104,845 $3,165,003.90
</TABLE>
[SIGNATURE PAGE TO
SUPPLEMENTAL PURCHASE AGREEMENT]
<PAGE> 12
EXHIBIT A
SUPPLEMENTAL SCHEDULE OF EXCEPTIONS
<PAGE> 13
SCHEDULE OF EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
This Schedule of Exceptions is made and given pursuant to Section 4 of
the Supplemental Purchase Agreement (the "Agreement"). The section numbers in
this Schedule of Exceptions correspond to the section numbers in the Series C
Preferred Stock Purchase Agreement dated August 17, 1995, by and among
CombiChem, Inc. ("CombiChem") and the investors listed on Schedule A thereto
(the "First Closing Agreement"); however, any information disclosed herein
under any section number shall be deemed to be disclosed and incorporated into
any other section number where such disclosure would otherwise be appropriate.
Any terms defined in the Agreement or the First Closing Agreement shall have
the same meaning when used in this Schedule of Exceptions as when used in the
Agreement or the First Closing Agreement unless the context otherwise requires.
Nothing herein constitutes an admission of any liability or obligation
on the part of CombiChem nor an admission against CombiChem's interest. The
inclusion of any schedule herein or any exhibit hereto should not be
interpreted as indicating that CombiChem has determined that such an agreement
or other matter is necessarily material to CombiChem. The Investors
acknowledge that certain information contained in these schedules may
constitute material confidential information relating to CombiChem which may
not be used for any purpose other than that contemplated in the Agreement.
<PAGE> 14
SCHEDULE 2.5
CAPITALIZATION AND VOTING RIGHTS
Certain investors of the Company are parties to assignment agreements
pursuant to which they have assigned the right to receive warrants issuable in
connection with the Series C Preferred Stock financing to other investors.
12,053,641 shares of Series C Preferred Stock are issued and
outstanding and up to an additional 5,104,845 shares of Series C Preferred
Stock will be issued pursuant to the Agreement.
2,646,660 shares of Common Stock are issued and outstanding.
There are currently outstanding options to purchase 3,089,920 shares
of Common Stock pursuant to the Company's 1995 Stock Option/Stock Issuance
Plan. In addition to the aforementioned options, the Company has reserved an
additional 330,354 shares of its Common Stock for purchase or upon exercise of
options to be granted in the future under the Plan.
The Company intends to issue an option to purchase 840,000 shares of
Common Stock to Vicente Anido pursuant to the Company's 1995 Stock Option/Stock
Issuance Plan. Prior to issuing such option to Mr. Anido, the Company plans to
(i) amend the Restated Articles in order to avoid triggering an antidilution
adjustment and (ii) amend the Company's 1996 Stock Option/Stock Issuance Plan
in order to authorize additional shares.
The Company intends to grant warrants to Comdisco, Inc. pursuant to
which 240,322 shares of Series C Preferred Stock may be issued.
Vicente Anido has been granted a right to purchase a number of shares
sufficient to allow him to maintain a 6% ownership percentage in the Company
upon future financings.
Vicente Anido has been granted the right to obtain a number of shares
of the Company's Common Stock ("Shares") equal to 96,000 divided by (i) the per
share price paid by investors in the Company next preferred stock financing
(excluding the issuance of Series C Preferred Stock pursuant to the Agreement)
occurring prior to September 15, 1996 or (ii) in the event the Company's next
preferred stock financing has not occurred prior to September 15, 1996, $1.50.
The Shares, or the purchase price therefore, are to be provided to Mr. Anido
either as a one-time bonus or through a forgivable loan.
Schedule 2.5
<PAGE> 15
The outstanding shares of Preferred Stock and Common Stock are owned
by the shareholders and in the numbers specified herein:
<TABLE>
<CAPTION>
CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------------------------------------- ----------
<S> <C> <C>
Common Kim D. Janda 175,000
Common Chi-Huey Wong 150,000
Common Dale L. Boger 150,000
Common Eric Erb 10,000
Common Standish Fleming 37,500
Common Trustees of Royston Family Trust UTA 2/12/82 37,500
Common Sydney Brenner 150,000
Common Forward Ventures II, L.P. 225,000
Common Jeffrey Sollender 10,000
Common Robert A. Curtis 229,160
Common Gail Erwin 2,500
Common Sequoia Capital VI 91,000
Common Sequoia Technology Partners VI 5,000
Common Sequoia XXIV 4,000
Common Lynn H. Caporale 175,000
Common Bobbie J. Bosley 10,000
Common Eric Erb 5,000
Common Angelo Castillino, Ph.D. 20,000
Common Peter A. Bick 20,000
Common Soan Cheng 20,000
Common Daniel C. M. Sun 10,000
Common Gail Erwin 40,000
Common Christine M. Tarby 14,000
Common Peter M. Wirsching, Ph.D. 11,764
Common Richard A. Lerner, M.D. 83,000
Common The Scripps Research Institute 305,236
Common Peter Myers 350,000
</TABLE>
Schedule 2.5
<PAGE> 16
<TABLE>
<CAPTION>
CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------------------------------------- ----------
<S> <C> <C>
Common Jonathan Greene 100,000
Common Steven Teig 200,000
Common Ken Rubenstein 6,000
TOTAL COMMON: 2,646,660
Series A Forward Ventures II, L.P. 600,000
Series A Sequoia Capital VI 364,000
Series A Sequoia Technology Partners VI 20,000
Series A Sequoia XXIV 16,000
TOTAL SERIES A: 1,000,000
Series B Sequoia Capital VI 1,213,334
Series B Sequoia Technology VI 66,667
Series B Sequoia Capital VI 53,333
Series B Forward Ventures II, L.P. 866,666
Series B Lynn H. Caporale 26,667
TOTAL SERIES B: 2,226,667
Series C Sprout Capitol VII, L.P. 3,126,821
Series C DLJ Capital Corporation 260,276
Series C Sofinnova Ventures III, L.P. 1,129,033
Series C Singapore Bio-Innovation Ptd., Ltd. 564,517
Series C Sequoia Capital VI 1,335,646
Series C Sequoia Technology Partners VI 73,388
Series C Sequoia XXIV 58,710
Series C PaineWebber Incorporated as Custodian of
the Michael Grossman Rollover IRA 37,218
Series C Steven M. Lash 16,185
</TABLE>
Schedule 2.5
<PAGE> 17
<TABLE>
<CAPTION>
CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------------------------------------- ----------
<S> <C> <C>
Series C First Interstate Bank as Trustee for SK 80,874
International Securities Corp. 401(k) PS em Stephen
J. Kendel
Series C Byron T. Franzen 56,452
Series C IRA FBO Byron T. Franzen 112,904
Series C M.L. Lawrence Revocable Trust 225,807
Series C Farley Inc. 846,775
Series C Sorrento Ventures II, L.P. 564,517
Series C Sorrento Growth Partners I, L.P. 1,129,033
Series C Comdisco, Inc. 169,355
Series C Brinson Venture Capital Fund III, L.P. 1,941,441
Series C Brinson Trust Company as Trustee of the Brinson MAP 316,624
Venture Capital Fund III
Series C Todd Schmidt 8,065
TOTAL SERIES C: 12,053,641
Series Z Sydney Brenner 200,000
TOTAL SERIES Z: 200,000
</TABLE>
Schedule 2.5
<PAGE> 18
SCHEDULE 2.7
CONTRACTS AND OTHER COMMITMENTS
The Company is a party to the following agreements:
(a) (i) Lease for 9050 Camino Santa Fe, San Diego, CA 92121
dated December 22, 1995.
(ii) Industrial Lease for 1221 Innsbruck Drive, Sunnyvale,
CA dated December 7, 1992.
(iii) Second Sublease for 1225 Innsbruck Drive, Sunnyvale,
CA and draft of Addendum No. 1.
(iv) See (e)(iv) and (v) below.
(v) Pursuant to that certain Agreement dated August 4,
1995 among the Company, Molecular Simulations
Inc.("MSI") and Entropix Corporation, the Company was
obligated to make the following cash payments on or
before December 31, 1995: (A) $100,000 and (B) at the
sole discretion of MSI, either (i) a cash payment in
an amount equal to $140,000 or (ii) 225,807 shares of
Series Z Preferred Stock (to date MSI has not made
the election described in (B) and the Company has not
made the payment). In addition, the Company issued a
promissory note to MSI for $300,000 payable June 15,
1996 in cash, or at the Company's option, by issuing
100,000 shares of Series Z Preferred Stock.
(vi) In connection with the execution of the Agreement
with MSI described in (v) above and pursuant to a
License Agreement dated August 4, 1995 between the
Company and MSI ("MSI License Agreement"), the
Company agreed to pay to MSI royalties equal to: (A)
in connection with the sale of a single product, the
lesser of 5% of net sales of such product or $25,000;
(B) in connection with the sale of more than one
product in a single transaction, the sum of (I) with
respect to the first product included in such
transaction, the lesser of 5% of net sales of such
product or $25,000 and (II) with respect to the
additional products, a flat royalty of $5,000 per
additional product; or (C) in connection with a
collaboration or contract research project, the
lesser of 2% of net sales for such collaboration or
contract research project or $100,000. The maximum
aggregate royalties payable under the agreement is
$5.0 million.
(vii) Certain employees have arrangements with the Company
pursuant to which severance payments would be made
following their termination of employment in certain
circumstances. No such payments are currently being
made, except for payments being made to Robert A.
Curtis whom the Company is obligated to pay an
additional $58,230.
(viii) Pursuant to the Sublicense Agreement dated July 20,
1995 between the Company and Johnson & Johnson (the
"J&J Sublicense"), the Company has paid $40,000 to
Johnson & Johnson and is required to make the
following additional payments: (A) aggregate payments
of $60,000 (subject to certain time and performance
milestones) (B) an additional royalty of 1% of
monetary compensation received in connection with a
further sublicense of rights under the Agreement and
(C) earned royalties 10% of
Schedule 2.7
<PAGE> 19
net sales value of products sold under the agreement
by the Company or affiliates or 10% of the royalty or
other income received by the Company from sublicensee
or third parties in consideration of granting of
further sublicenses.
(ix) See (c)(i) below.
(b) (i) Preferred Stock Purchase Agreement (600,000 Shares of
Series A Preferred Stock) dated August 26, 1994
between the Company and Forward Ventures II, L.P.
(ii) Common Stock Purchase Agreement (225,000 Shares of
Common Stock) dated September 28, 1994 between the
Company and Forward Ventures II, L.P.
(iii) Preferred Stock Purchase Agreement (200,000 Shares of
Series Z Preferred Stock) dated October 12, 1994
between the Company and Dr. Sydney Brenner.
(iv) Stock Purchase Agreement Preferred and Common
(400,000 Shares of Series A Preferred Stock and
100,000 Shares of Common Stock) dated November 1,
1994 among the Company, Sequoia Capital VI, Sequoia
Technology Partners VI and Sequoia XXIV.
(v) Stock Purchase Agreement Series B Preferred dated
November 29, 1994 among the Company, Sequoia Capital
VI, Sequoia Technology Partners VI, Sequoia XXIV and
Forward Ventures II, L.P.
(vi) Stock Purchase Agreement (Series B Preferred) dated
January 15, 1995 between the Company and Lynn H.
Caporale, Ph.D.
(vii) Common Stock Purchase Agreement dated March 20, 1995
between the Company and The Scripps Research
Institute, as amended through the date hereof.
(viii) The Company is party to the following Common Stock
Purchase Agreements:
<TABLE>
<CAPTION>
AMOUNT OF SHARES
NAME DATE CURRENTLY OUT-
STANDING UNDER AGMTS
<S> <C> <C>
Kim D. Janda 09/28/94 175,000
Chi-Huey Wong 09/28/94 150,000
Dale L. Boger 09/28/94 150,000
Eric Erb 09/28/94 10,000
Standish Fleming 09/28/94 37,500
Trustee of Royston Family Trust UTA 2/12/82 09/28/94 37,500
</TABLE>
Schedule 2.7
<PAGE> 20
<TABLE>
<CAPTION>
AMOUNT OF SHARES
NAME DATE CURRENTLY OUT-
STANDING UNDER AGMTS
<S> <C> <C>
Sydney Brenner 09/28/94 150,000
Jeffrey Sollender 09/28/94 10,000
Robert A. Curtis 10/18/94 229,160
Gail Erwin 10/18/94 2,500
Lynn H. Caporale 11/08/94 175,000
Bobbie J. Bosley 11/18/94 10,000
Eric D. Erb 01/01/95 5,000
Angelo J. Castellino 01/19/95 20,000
Peter A. Bick 01/23/95 20,000
Soan Cheng 01/23/95 20,000
Daniel C.M. Sun 01/30/95 10,000
Gail Erwin 02/06/95 40,000
Christine M. Tarby 04/24/95 14,000
Peter Myers 3/1/95 350,000
Steve Teig 6/2/95 200,000
Jonathon Greene 6/3/95 100,000
</TABLE>
(ix) See (a)(vi) above.
(x) The Company intends to enter into Series J Option
Agreements with each of Steven Teig, Jonathan Greene
and Andrew Smellie, pursuant to which an aggregate of
465,000 shares of Series J Preferred Stock may be
issued.
(x) The Company had previously entered into (A) that
certain Amended and Restated Stock Registration
Rights Agreement dated November 1, 1994, as amended
on November 29, 1994, January 15, 1995 and March 20,
1995 and (B) that certain Stock Registration Rights
Agreement dated October 12, 1994 which granted to
certain investors registration rights. These
agreements were terminated pursuant to Investors'
Rights Agreement.
(xi) Warrant Agreement with Comdisco, Inc., dated December
20, 1994
(xii) Pursuant to a consulting agreement with Ken
Rubenstein pursuant to which Mr. Rubenstein received
1,000 shares of the Company's common stock for each
month in which he performed consulting services.
This consulting
Schedule 2.7
<PAGE> 21
agreement has been terminated, and Mr. Rubenstein
received a total of 6,000 shares of the Company's
Common Stock pursuant to the agreement.
(xiii) The Company has granted an aggregate of 3,089,920
options to certain employees and consultants pursuant
to which up to an aggregate of 3,089,920 shares of
common stock may be issued.
(xv) The First Closing Agreement.
(xvi) The Company has entered into a Stock Purchase
Agreement with Todd Schmidt pursuant to which Mr.
Schmidt was issued 8,065 shares of the Company's
Series C Preferred Stock.
(xvii) The Company intends to enter into Warrant Agreements
with Comdisco, Inc. pursuant to which 240,322 shares
of Series C Preferred Stock may be issued.
(c) (i) Master Lease Agreement with Comdisco, Inc.
("Comdisco") dated November 16, 1994
(ii) See (a)(v) above.
(iii) The Company has made a loan to Peter Myers in the
principal amount of $150,000.
(iv) The Company expects to incur a commitment to John
Saunders to make a loan for the purchase of a home in
the principal amount of up to $70,000.
(v) The Company is obligated to reimburse certain
employees with respect to certain tax liabilities.
The aggregate amount of these obligations are
approximately $30,000.
(d) (i) The Company is party to employment agreements with
the following individuals: Eric Erb; Lynn H.
Caporale; Peter Myers; Jonathan Greene; Steven Teig;
Andrew Smellie; and Vicente Anido. In addition, the
Company is a party to offer letters and/or memoranda
with the following employees in which certain terms
and conditions of the employee's employment are set
forth: D. Barnum; S. Bondy; G. Bosley; A.
Castellino; S. Cheng; D. Comer; G. Erwin; T.
Fitzpatrick; K. Granlund-Moyer; D. Kassel; M. Ruis;
M. Salkin; B. Shroyer; D. Sun; C. Tarby; K. Wheeler;
J. Williams.
(ii) The Company is a party to the following consulting
agreements: H. Kiefer (dated 01/19/96); Dale L. Boger
(dated 05/01/94); Kim D. Janda (dated 08/09/94);
Sydney Brenner (dated 08/10/94); and Chi-Huey Wong
(dated 08/11/94). The Company entered into a letter
agreement dated July 25, 1995 with Transpect
Incorporated ("Transpect") pursuant to which
Transpect is retained as an advisor and consultant
with respect to the establishment of a relationship
with Daiichi Pharmaceutical Co., Ltd (or any company
mutually agreed to). In addition, the Company is a
party to Scientific Advisory Board Agreement with the
following individuals: A. Bard (dated 09/07/95); D.
Danishefsky (dated 04/08/95); W. Jorgensen (dated
05/18/95).
Schedule 2.7
<PAGE> 22
(e) (i) Agreement for Purchase and Sale of Assets dated
September 28, 1994 among the Company, Combichem,
Inc., a Delaware corporation, KPCB VI and KPCB IV-FF.
(ii) License Agreement with The Scripps Research Institute
("Scripps License").
(iii) Assignments of Dr. Sydney Brenner.
(iv) Letter of Intent - R&D Collaboration and
Manufacturing and Supply Agreement with LJL
Biosystems, Inc. dated March 15, 1995 as amended June
1, 1995, July 25, 1995 and August 16, 1995.
(v) Letter to LJL Biosystems, Inc. detailing revised
payment schedule for COMBISYN 100 program dated July
21, 1995. Letter from LJL Biosystems, Inc. detailing
proposed engineering and pricing changes.
(vi) See (a)(vii) above.
(vii) Sublicense Agreement dated July 20, 1995 between the
Company and Johnson & Johnson.
(viii) Option Agreement with The Scripps Research Institute
("Scripps Option").
(ix) Evaluation Study and Test Site Agreement between the
Company and Chugai Pharmaceutical pursuant to which
Chugai has paid to the Company an amount equal to
$300,000 in order to Beta Test the Company's product,
which sum may be applied to future purchases of the
Company's products, and a portion of which sum the
Company may be required to return to Chugai in
certain circumstances.
(x) Collaboration Agreement dated on or about March 29,
1996 between the Company and Teijin Limited to
design, synthesize and screen compound libraries for
*** and *** . The Company
retains all rights with respect to compounds in North
America, Central America and South America subject to
an option to acquire such rights granted to Teijin.
Teijin retains all rights with respect to compounds
in all other territories. The Company is entitled to
receive a *** upfront fee, milestone payments,
annual research funding and royalties from Teijin.
(f) The Company intends to enter into indemnification agreements
with each of the directors of the Company following the Second
Closing. In addition, other agreements listed in this
Schedule of Exceptions or to be entered into in connection
with the Second Closing may contain indemnification
provisions.
(i) None
(ii) See (a) above.
(iii) See (c)(iii) and (c)(iv) above.
(iv) See (a)(v) and (a)(vi) above.
In connection with the MSI transaction discussed above and in addition
to the agreements noted above, the Company also entered into a separate License
Agreement (pursuant to which it obtained a license to certain MSI products), an
Acknowledgement and General Release (pursuant to which the operation of certain
sections of Mr. Teig's prior contracts with MSI were waived
***Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Schedule 2.7
<PAGE> 23
and the Company and Mr. Teig were released from claims arising out of such
released sections of the contracts).
The sale of shares of Series C Preferred Stock pursuant to the First
Closing Agreement resulted in a change of ownership of greater than 50% of the
voting power of the Company prior to the date of the First Closing Agreement.
The Company has performed all obligations and conditions required to
be performed or met by it through the date hereof under each of the Scripps
License and Scripps Option. The Scripps License is in full force and effect as
of the date hereof. The Scripps Option has not been exercised, as of the date
of the Closing. The Company will use its best efforts not to waive any rights
of the Company under the Scripps License or Scripps Option, without the consent
of a majority of the outstanding shares of Series C Preferred Stock (and shares
of the Company's capital stock issuable upon exchange or conversion of the
Series C Preferred Stock).
Schedule 2.7
<PAGE> 24
SCHEDULE 2.8
RELATED-PARTY TRANSACTIONS
Venture capital funds affiliated with directors participated in the
Company's prior rounds of financing and will purchase shares of the Company's
Series C Preferred Stock pursuant to the Agreement. Such directors may engage
in the development and financing of other companies and/or research projects
which may be developing, or may in the future develop, products which may
compete directly, or indirectly, with the products intended to be developed by
the Company.
See Schedule 2.7(c) above.
Schedule 2.8
<PAGE> 25
SCHEDULE 2.9
REGISTRATION RIGHTS
The Company is obligated to register shares of Common Stock issuable
upon conversion of Series Z Preferred Stock and Series C Preferred Stock
issuable upon exercise of warrants issued (or to be issued) in connection with
the Company's equipment lease lines.
Schedule 2.9
<PAGE> 26
SCHEDULE 2.10
PERMITS
The Company is in the process of obtaining permits in connection with
certain tenant improvements being made, or planned to be made at the Company's
facility at 9050 Camino Santa Fe, San Diego, CA 92121.
Schedule 2.10
<PAGE> 27
SCHEDULE 2.15
TITLE TO PROPERTY AND ASSETS; LEASES
Under the terms of the Company's lease lines, Comdisco retains all
rights to the equipment purchased under such lines, with the Company having an
option to purchase at the completion of the term of the agreement.
Schedule 2.15
<PAGE> 28
SCHEDULE 2.16
FINANCIAL STATEMENTS
The contingent severance payments due under certain employment
arrangements with the Company's employees are not reflected on the February 29,
1996 financial statements.
Schedule 2.16
<PAGE> 29
SCHEDULE 2.18
PATENTS AND TRADEMARKS
A list of pending patent applications is attached hereto as Exhibit A
to Schedule 2.18.
The Company filed intent to use application Serial No. 74/363,514 with
the United States Patent and Trademark Office ("PTO") to register the mark
COMBICHEM on February 26, 1993 in Class 42 for the services of combinatorial
chemistry and molecular biology research and analysis. The application was
inadvertently abandoned and a petition to revive the application, filed on June
14, 1995 with the PTO was rejected. The Company filed a duplicate application
on June 5, 1995 in case the petition to revive was denied. This application
was suspended pending resolution of a prior application for the Company.
The Company filed intent to use application Serial No. 74/363,515 to
register the mark COMBICHEM on February 26, 1993 in Class 5 for the
pharmaceuticals and chemical compounds. The application was inadvertently
abandoned and a petition to revive the application was rejected. The Company
filed a duplicate application on November 15, 1994. This application was
suspended pending resolution of a prior application for the Company.
An intent to use application for the mark COMBISYN was filed by the
Company on February 13, 1995 and was approved from publication by the PTO. The
application was filed in Class 9 for scientific apparatus for use in
synthesizing by combinatorial chemistry small molecules for use in scientific
research.
An intent to use application for the mark COMBIWARE was filed by the
Company November 7, 1995 and is now pending. The application was filed in
Class 9 for computer software for use in scientific research, mainly, for the
design and maintenance of chemical libraries and the automation of molecular
synthesis in the field of combinatorial chemistry, an instruction and user
manual sold as a unit therewith.
In connection with the MSI License Agreement, the Company received
certain licenses to use MSI proprietary technology and granted to MSI an
exclusive option to negotiate a distribution agreement with respect to a
stand-alone chemical diversity measure software program.
The J&J Sublicense contains a grant-back of a non-exclusive
irrevocable royalty-free license (with the right to sublicense affiliates)
under all patent improvements for the term of the agreement.
See Schedule 2.7.
Schedule 2.18
<PAGE> 30
SCHEDULE 2.19
MANUFACTURING AND MARKETING RIGHTS
Pursuant to the MSI License Agreement, the Company has granted to MSI
an exclusive option to negotiate a distribution agreement with respect to a
stand-alone chemical diversity measure software program.
LJL Biosystems, Inc. is preparing test models of certain of the
Company's products.
Schedule 2.19
<PAGE> 31
SCHEDULE 2.23
INSURANCE
The Company has covenanted to certain investors to maintain key man
life insurance on the life of Steven Tieg in the amount of $2,000,000. The
Company currently maintains only $1,350,000 in insurance on the life of Mr.
Tieg.
Schedule 2.23
<PAGE> 32
EXHIBIT A TO SCHEDULE 2.18
The Company has applied for a patent application entitled "A TEMPLATE
FOR SOLUTION PHASE SYNTHESIS OF COMBINATORIAL LIBRARIES", Docket Number
215/288, as of October 17, 1995.
Schedule 2.23
<PAGE> 1
EXHIBIT 10.8
COMBICHEM, INC.
SERIES D PREFERRED
STOCK PURCHASE AGREEMENT
------------------------
November 15, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
1. Purchase and Sale of Stock.................................................. 1
1.1 Sale and Issuance of Series D Preferred Stock........................ 1
1.2 Closing.............................................................. 1
2. Representations and Warranties of the Company............................... 2
2.1 Organization; Good Standing; Qualification........................... 2
2.2 Authorization........................................................ 2
2.3 Valid Issuance of Preferred and Common Stock......................... 2
2.4 Governmental Consents................................................ 3
2.5 Capitalization and Voting Rights..................................... 3
2.6 Subsidiaries......................................................... 4
2.7 Contracts and Other Commitments...................................... 4
2.8 Related-Party Transactions........................................... 5
2.9 Registration Rights.................................................. 5
2.10 Permits.............................................................. 5
2.11 Compliance with Other Instruments.................................... 6
2.12 Litigation........................................................... 6
2.13 Disclosure........................................................... 6
2.14 Offering............................................................. 6
2.15 Title to Property and Assets; Leases................................. 7
2.16 Financial Statements................................................. 7
2.17 Changes.............................................................. 7
2.18 Patents and Trademarks............................................... 8
2.19 Manufacturing and Marketing Rights................................... 8
2.20 Employees; Employee Compensation..................................... 8
2.21 Proprietary Information and Inventions Agreements.................... 9
2.22 Tax Returns, Payments and Elections.................................. 9
2.23 Insurance............................................................ 9
2.24 Environmental and Safety Laws........................................ 10
2.25 Minute Books......................................................... 10
2.26 Real Property Holding Corporation.................................... 10
2.27 Small Business Concern............................................... 10
2.28 Qualified Small Business............................................. 10
3. Representations and Warranties of the Investors............................. 10
3.1 Authorization........................................................ 10
3.2 Purchase Entirely for Own Account.................................... 10
3.3 Reliance Upon Investors' Representations............................. 11
3.4 Receipt of Information............................................... 11
3.5 Investment Experience................................................ 11
3.6 Accredited Investor.................................................. 11
3.7 Restricted Securities................................................ 12
</TABLE>
i.
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
3.8 Legends.............................................................. 12
3.9 Public Sale.......................................................... 13
3.10 Non-U.S. Person...................................................... 13
4. Covenants of the Company.................................................... 14
5. Conditions of Investor's Obligations at Closing............................. 14
5.1 Representations and Warranties....................................... 14
5.2 Performance.......................................................... 14
5.3 Compliance Certificate............................................... 14
5.4 Qualifications....................................................... 14
5.5 Proceedings and Documents............................................ 14
5.6 Small Business Concern Documents..................................... 15
5.7 Opinion of Company Counsel........................................... 15
5.8 Investors' Rights Agreement.......................................... 15
5.9 Co-Sale Agreements................................................... 15
5.10 Filing of Restated Articles.......................................... 15
6. Conditions of the Company's Obligations at Closing.......................... 15
6.1 Representations and Warranties....................................... 15
6.2 Qualifications....................................................... 15
6.3 Co-Sale Agreements................................................... 15
7. Miscellaneous............................................................... 16
7.1 Entire Agreement..................................................... 16
7.2 Survival of Warranties............................................... 16
7.3 Successors and Assigns............................................... 16
7.4 Governing Law........................................................ 16
7.5 Counterparts......................................................... 16
7.6 Titles and Subtitles................................................. 16
7.7 Notices.............................................................. 16
7.8 Finder's Fees........................................................ 16
7.9 Expenses............................................................. 17
7.10 Attorneys' Fees...................................................... 17
7.11 Amendments and Waivers............................................... 17
7.12 Severability......................................................... 17
7.13 Corporate Securities Law............................................. 17
7.14 Exculpation Among Investors.......................................... 18
</TABLE>
<TABLE>
<S> <C>
Exhibit A Amended and Restated Articles of Incorporation
Exhibit B Amended and Restated Investors' Rights Agreement
Exhibit C Current Shareholders
Exhibit D Co-Sale Agreement
Schedule A Schedule of Investors
Schedule of Exceptions
</TABLE>
ii.
<PAGE> 4
COMBICHEM, INC.
SERIES D PREFERRED
STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is
made as of the 15th day of November, 1996, by and between CombiChem, Inc., a
California corporation (the "Company"), and each of the persons listed on
Schedule A hereto, each of which is herein referred to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series D Preferred Stock.
1.1.1 The Company shall adopt and file with the Secretary of
State of California on or before the Closing (as defined below) Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit A (the
"Restated Articles").
1.1.2 Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Closing and the
Company agrees to sell and issue to each Investor, severally and not jointly, at
the Closing that number of shares of the Company's Series D Preferred Stock set
forth opposite each Investor's name on Schedule A hereto under the heading
"Closing," at a price of $1.00 per share for an aggregate amount to be sold to
all Investors at the Closing of at least 9,869,205 shares.
1.2 Closing. The purchase and sale of the Series D Preferred Stock shall
take place at the offices of Brobeck, Phleger & Harrison LLP, 550 West C Street,
Suite 1200, San Diego, California, at 10:00 a.m., on November 15, 1996, or at
such other time and place as the Company and Investors acquiring in the
aggregate more than half the shares of Series D Preferred Stock sold pursuant
hereto mutually agree upon orally or in writing (which time and place are
designated as the "Closing"). At the Closing the Company shall deliver to each
Investor a certificate representing the Series D Preferred Stock that such
Investor is purchasing against payment of the purchase price therefor by check
or wire transfer.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that, except as set forth on a Schedule
of Exceptions furnished each Investor and special counsel for the Investors,
which exceptions shall be deemed to be representations and warranties as if made
hereunder:
<PAGE> 5
2.1 Organization; Good Standing; Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, has all requisite corporate power and authority to
own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver this
Agreement, the Amended and Restated Investors' Rights Agreement dated the date
hereof in the form attached as Exhibit B ("the Investors' Rights Agreement"),
and any other agreement to which the Company is a party and the execution and
delivery of which is contemplated hereby (the "Ancillary Agreements"), to issue
and sell the Series D Preferred Stock and the Common Stock issuable upon
conversion thereof, and to carry out the provisions of this Agreement, the
Investors' Rights Agreement, the Restated Articles and any Ancillary Agreement.
The Company is not qualified to do business as a foreign corporation in any
jurisdiction and such qualification is not now required.
2.2 Authorization. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the Investors' Rights Agreement and any
Ancillary Agreement, the performance of all obligations of the Company hereunder
and thereunder at the Closing and the authorization, issuance (or reservation
for issuance), sale and delivery of the Series D Preferred Stock being sold
hereunder, the Series D-1 Preferred Stock issuable upon conversion of the Series
D Preferred Stock and the Common Stock issuable upon conversion of the Series D
Preferred Stock or Series D-1 Preferred Stock has been taken or will be taken
prior to the Closing, and this Agreement, the Investors' Rights Agreement, and
any Ancillary Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, moratorium and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Investors' Rights Agreement may be
limited by applicable federal or state securities law.
2.3 Valid Issuance of Preferred and Common Stock. The Series D Preferred
Stock that is being purchased by the Investors hereunder will upon issuance and
delivery hereunder be duly and validly issued, fully paid and nonassessable, and
will be free of restrictions on transfer other than restrictions on transfer
under this Agreement and the Investors' Rights Agreement and under applicable
state and federal securities laws. The Series D-1 Preferred Stock issuable upon
conversion of the Series D Preferred Stock purchased under this Agreement and
the Common Stock issuable upon conversion of such Series D Preferred Stock and
the Series D-1 Preferred Stock have been duly and validly reserved for issuance
and, upon issuance in accordance with the terms of the Restated Articles, will
be duly and validly issued, fully paid and nonassessable and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and the Investors' Rights Agreement and under applicable state and
federal securities laws. The Series D Preferred Stock that is being purchased
hereunder, the Series D-1 Preferred Stock issuable upon conversion of the Series
D Preferred Stock and the Common Stock issuable upon conversion of the Series D
Preferred
2.
<PAGE> 6
Stock and Series D-1 Preferred Stock are not subject to any pre-emptive rights
or rights of first refusal which have not been previously waived.
2.4 Governmental Consents. No consent, approval, qualification, order or
authorization of, or filing with, any local, state or federal governmental
authority is required on the part of the Company in connection with the
Company's valid execution, delivery or performance of this Agreement, the offer,
sale or issuance of the Series D Preferred Stock by the Company, the issuance of
Series D-1 Preferred Stock upon conversion of the Series D Preferred Stock or
the issuance of Common Stock upon conversion of the Series D Preferred Stock or
Series D-1 Preferred Stock, except (i) the filing of the Restated Articles with
the Secretary of State of the State of California, and (ii) such filings as have
been made prior to the Closing, except Form D or any notices of sale required to
be filed under applicable state securities laws, which will be timely filed
within the applicable periods therefor.
2.5 Capitalization and Voting Rights. The authorized capital of the
Company consists, or will consist prior to the Closing, of:
2.5.1 Preferred Stock. 63,196,296 shares of Preferred Stock, no par
value (the "Preferred Stock"), of which 1,000,000 shares have been designated
Series A Preferred Stock, all of which are issued and outstanding, 2,226,667
shares have been designated Series B Preferred Stock, all of which are issued
and outstanding, 17,519,776 have been designated Series C Preferred Stock,
17,158,486 of which are issued and outstanding, 1,500,000 shares have been
designated Series Z Preferred Stock, 532,777 of which are issued and
outstanding, 465,000 shares have been designated Series J Preferred Stock, none
of which are issued and outstanding, 1,000,000 shares have been designated
Series A-1 Preferred Stock, none of which are issued and outstanding, 2,226,667
shares have been designated Series B-1 Preferred Stock, none of which are issued
and outstanding, 17,519,776 shares have been designated Series C-1 Preferred
Stock, none of which are issued and outstanding, 9,869,205 shares have been
designated Series D Preferred Stock, all of which will be issued pursuant to
this Agreement, and 9,869,205 shares have been designated Series D-1 Preferred
Stock, none of which are issued and outstanding. The rights, privileges and
preferences of the Series A, Series B, Series C, Series D, Series J, Series Z,
Series A-1, Series B-1, Series C-1 and Series D-1 Preferred Stock will be as
stated in the Restated Articles.
2.5.2 Common Stock. 80,000,000 shares of common stock ("Common
Stock"), no par value, of which 2,714,327 shares are issued and outstanding.
2.5.3 The outstanding shares of Preferred Stock and Common Stock are
owned by the shareholders and in the numbers specified in Exhibit C hereto.
2.5.4 The outstanding shares of Preferred Stock and Common Stock
have been issued in accordance with the registration or qualification provisions
of the Securities Act of 1933, as amended (the "Securities Act") and any
relevant state securities laws or pursuant to valid exemptions therefrom.
3.
<PAGE> 7
2.5.5 Except for (A) the conversion privileges of the Preferred
Stock, (B) the rights provided in paragraph 2.3 of the Investors' Rights
Agreement, (C) currently outstanding options to purchase 40,000 shares of Common
Stock granted to an employee prior to the adoption of the Company's 1995 Stock
Option/Stock Issuance Plan (the "Plan"), (D) currently outstanding options to
purchase 4,420,337 shares of Common Stock granted to employees or consultants
pursuant to the Plan, (E) options to purchase 465,000 shares of Series J
Preferred Stock to be granted to certain employees in connection with their
employment by the Company, (F) up to 196,558 shares of Series Z Preferred Stock
issuable upon exercise of warrants issued (or to be issued) in connection with
the Company's equipment lease line, (G) 35,000 shares of Common Stock issuable
upon exercise of warrants outstanding at the Closing, (H) up to 240,321 shares
of Series C Preferred Stock issuable upon exercise of warrants issued (or to be
issued) in connection with the Company's equipment lease line and (I) 120,968
shares of Series C Preferred Stock issuable upon exercise of warrants
outstanding at the Closing, there are not outstanding any options, warrants,
rights (including conversion or preemptive rights and rights of first refusal)
or agreements for the purchase or acquisition from the Company of any shares of
its capital stock. In addition to the aforementioned options, the Company has
reserved an additional 599,937 shares of its Common Stock for purchase or upon
exercise of options to be granted in the future under the Plan or other employee
arrangement approved by the Board of Directors of the Company. The Company is
not a party or subject to any agreement or understanding, and, to the best of
the Company's knowledge, there is no agreement or understanding between any
persons that affects or relates to the voting or giving of written consents with
respect to any security or the voting by a director of the Company.
2.6 Subsidiaries. The Company does not own or control, directly or
indirectly, any interest in any other corporation, association or other business
entity. The Company is not a participant in any joint venture, partnership or
similar arrangement.
2.7 Contracts and Other Commitments. The Schedule of Exceptions contains
a complete list of all of the following agreements and instruments to which the
Company is a party: (a) all contracts, agreements and instruments which involve
a commitment by, or payments to, the Company in excess of $50,000; (b) all stock
purchase or redemption agreements; (c) all loan or debt agreements and other
evidences of indebtedness, including guarantees; (d) all employment agreements
and other agreements with or for the benefit of any director, officer, employee
or 10% stockholder of the Company; (e) all licenses of any patent, trade secret
or other proprietary right to or from the Company; and (f) all indemnification
and noncompetition agreements (collectively, the "Material Agreements"). All the
Material Agreements are valid and binding obligations of the Company, in full
force and effect in all material respects. The Company is not aware of any
material default, either pending or threatened, with respect to the Material
Agreements. The Company is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its charter
documents or Bylaws, which adversely affects its business as presently conducted
or as currently proposed to be conducted, its properties or its financial
condition.
4.
<PAGE> 8
The Company has not (I) declared or paid any dividends, or authorized or
made any distribution upon or with respect to any class or series of its capital
stock, (II) incurred any indebtedness for money borrowed or incurred any other
liabilities individually in excess of $25,000 or in excess of $50,000 in the
aggregate, (III) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (IV) sold, exchanged or otherwise disposed of
any of its assets or rights, nor entered into any agreement therefor, other than
the sale of its inventory in the ordinary course of business. The Company has
not engaged in the past three months in any discussion (i) with any
representative of any corporation or corporations regarding the consolidation or
merger of the Company with or into any such corporation or corporations, (ii)
with any corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or substantially
all of the assets of the Company or a transaction or series of related
transactions in which more than 50% of the voting power of the Company is
disposed of, or (iii) regarding any other form of acquisition, liquidation,
dissolution or winding up of the Company.
2.8 Related-Party Transactions. No employee, officer or director of the
Company or member of his or her immediate family thereof is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the best of the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers or directors of the Company and members
of their immediate families may own stock in publicly traded companies that may
compete with the Company. To the best of the Company's knowledge, no officer or
director or any member of their immediate families is, directly or indirectly,
interested in any material contract with the Company.
2.9 Registration Rights. Except as provided in the Investors' Rights
Agreement, the Company is not obligated to register under the Securities Act any
of its presently outstanding securities or any of its securities that may
subsequently be issued.
2.10 Permits. The Company has all franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
2.11 Compliance with Other Instruments. The Company is not in violation
or default in any material respect of any provision of its Restated Articles or
Bylaws or in any material respect of any provision of, and no consent or
approval of any third party is required under, any mortgage, indenture,
agreement, instrument or contract to which it is a party or by
5.
<PAGE> 9
which it is bound or, to the best of its knowledge, of any federal or state
judgment, order, writ, decree, statute, rule or regulation applicable to the
Company. The execution, delivery and performance by the Company of this
Agreement, the Investors' Rights Agreement and any Ancillary Agreement, and the
consummation of the transactions contemplated hereby and thereby will not result
in any such violation or be in material conflict with or constitute, with or
without the passage of time or giving of notice, either a material default under
any such provision or an event that results in the creation of any material
lien, charge or encumbrance upon any assets of the Company or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization, or approval applicable to the Company, its business or
operations, or any of its assets or properties.
2.12 Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against the Company. The foregoing includes,
without limitation, any action, suit, proceeding, or investigation pending or
currently threatened involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, their obligations under any agreements with prior employers, or
negotiations by the Company with potential backers of, or investors in, the
Company or its proposed business. The Company is not a party to, or to the best
of its knowledge, named in any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit or
proceeding by the Company currently pending or that the Company currently
intends to initiate.
2.13 Disclosure. The Company has provided each Investor with all the
information reasonably available to it without undue expense that such Investor
has requested for deciding whether to purchase the Series D Preferred Stock and
all information which the Company believes is reasonably necessary to enable
such Investor to make such decision. Neither this Agreement nor any other
written statements or certificates made or delivered in connection herewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading.
2.14 Offering. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Series D Preferred Stock as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act, and neither the
Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.15 Title to Property and Assets; Leases. Except (a) as reflected in the
Financial Statements (as defined below), (b) for liens for current taxes not yet
delinquent, (c) for liens imposed by law and incurred in the ordinary course of
business for obligations not past due to carriers, warehousemen, laborers,
materialmen and the like, (d) for liens in respect of pledges or deposits under
workers' compensation laws or similar legislation, or (e) for minor defects in
title, none of which, individually or in the aggregate materially interferes
with the use of such property, the Company owns its property and assets free and
clear of all mortgages,
6.
<PAGE> 10
liens, claims and encumbrances. With respect to the property and assets it
leases, the Company is in compliance with such leases and, to the best of its
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances, subject to clauses (a)-(e) above.
2.16 Financial Statements. The Company has delivered to each Investor its
audited financial statements (balance sheet and profit and loss statement,
statement of shareholders' equity and statement of changes in financial position
including notes thereto) at December 31, 1995 and for the fiscal year then ended
(the "Audited Financial Statements") and its unaudited financial statements
(balance sheet and profit and loss statement including notes thereto) as at and
for the eight-month period ended August 31, 1996 (the "Unaudited Financial
Statements" and, collectively with the Audited Financial Statements, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other, except that the
Unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject to normal year-end audit
adjustments. Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to August 31, 1996 and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company. Except as disclosed in the Financial Statements, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
generally accepted accounting principles.
2.17 Changes. To the best of the Company's knowledge, since August 31,
1996, there has not been any event or condition of any type that has materially
and adversely affected the business, properties, prospects or financial
condition of the Company.
2.18 Patents and Trademarks. To the best of its knowledge, the Company
owns or possesses sufficient legal rights to all patents, trademarks,
servicemarks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted without any conflict with or infringement of the
rights of others. The Schedule of Exceptions contains a complete list of patents
and pending patent applications of the Company. Except for agreements with its
own employees or consultants, substantially in the form referenced in paragraph
2.21 below, there are no outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by
7.
<PAGE> 11
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights, trade secrets or other
proprietary rights of any other person or entity. After inquiry, the Company is
not aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employee's best efforts to promote the
interests of the Company or that would conflict with the Company's business as
proposed to be conducted. Neither the execution nor delivery of this Agreement,
nor the carrying on of the Company's business by the employees of the Company,
nor the conduct of the Company's business as proposed, will, to the best of the
Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to use any inventions of any
of its employees (or persons it currently intends to hire) made prior to their
employment by the Company.
2.19 Manufacturing and Marketing Rights. The Company has not granted
rights to manufacture, produce, assemble, license, market or sell its products
to any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
2.20 Employees; Employee Compensation. To the best of the knowledge of
the Company, there is no strike or labor dispute or union organization
activities pending or threatened between it and its employees. None of the
Company's employees belongs to any union or collective bargaining unit. To the
best of its knowledge, the Company has complied in all material respects with
all applicable state and federal equal employment opportunity and other laws
related to employment. To the best of the Company's knowledge, no employee of
the Company is or will be in violation of any judgment, decree or order, or any
term of any employment contract, patent disclosure agreement or other contract
or agreement relating to the relationship of any such employee with the Company
or any other party because of the nature of the business conducted or to be
conducted by the Company or to the utilization by the employee of his best
efforts with respect to such business. The Company is not aware that any officer
or key employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. Subject to general principles
related to wrongful termination of employees, the employment of each officer and
employee of the Company is terminable at the will of the Company.
2.21 Proprietary Information and Inventions Agreements. Each employee and
officer of the Company has executed a Proprietary Information and Inventions
Agreement substantially in the form or forms that have been delivered to special
counsel for the Investors, and each consultant or other person who has
contributed to the development of the Company's proprietary rights has assigned
his or her rights therein to the Company.
8.
<PAGE> 12
2.22 Tax Returns, Payments and Elections. The Company has filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The provision for
taxes of the Company as shown in the Financial Statements is adequate for taxes
due or accrued as of the date thereof. The Company has not elected pursuant to
the Internal Revenue Code of 1986, as amended ("Code"), to be treated as an S
corporation or a collapsible corporation pursuant to Section 341(f) or Section
1362(a) of the Code, nor has it made any other elections pursuant to the Code
(other than elections which relate solely to methods of accounting, depreciation
or amortization) which would have a material effect on the business, properties,
prospects or financial condition of the Company. The Company has never had any
tax deficiency proposed or assessed against it and has not executed any waiver
of any statute of limitations on the assessment or collection of any tax or
governmental charge. None of the Company's federal income tax returns and none
of its state income or franchise tax or sales or use tax returns has ever been
audited by governmental authorities. Since the date of the Financial Statements,
the Company has made adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to its business, properties
and operations for such period. The Company has withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.
2.23 Insurance. The Company has in full force and effect fire, general
liability, and casualty insurance policies, with extended coverage, in amounts
customary for companies similarly situated. The Company has in full force and
effect term life insurance, payable to the Company, on the lives of those
executive officers and in the amounts set forth in the Schedule of Exceptions.
2.24 Environmental and Safety Laws. To the best of its knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
2.25 Minute Books. The copy of the minute books of the Company provided
to the Investor's special counsel contain minutes of all meetings of directors
and shareholders and all actions by written consent without a meeting by the
directors and shareholders since the time of incorporation and reflect all
actions by the directors (and any committee of directors) and shareholders with
respect to all transactions referred to in such minutes accurately in all
material respects.
2.26 Real Property Holding Corporation. The Company is not a real
property holding corporation within the meaning of the Code Section 897(c)(2)
and any regulations promulgated thereunder.
9.
<PAGE> 13
2.27 Small Business Concern. The Company, together with its "affiliates"
(as that term is defined in Section 121.401 of Title 13 of the Code of Federal
Regulations), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958, as amended, and the regulations thereunder,
including Section 121.802(a)(2) of Title 13 of the Code of Federal Regulations.
The information set forth in the documents provided to the Investors pursuant to
Section 5.6 below is accurate and complete.
2.28 Qualified Small Business. The Company represents and warrants to the
Investors that, to the best of its knowledge, the shares of Series D Preferred
Stock offered hereby should qualify as "Qualified Small Business Stock" as
defined in Section 1202(c) of the Code as of the date hereof. The Company will
use reasonable efforts to comply with the reporting and recordkeeping
requirements of Section 1202 of the Code and any regulations promulgated
thereunder, and agrees not to repurchase any stock of the Company if such
repurchase would cause such shares not to so qualify as "Qualified Small
Business Stock."
3. Representations and Warranties of the Investors. Each Investor hereby
represents and warrants that:
3.1 Authorization. Each Investor represents that it has full power and
authority to enter into this Agreement and that this Agreement constitutes a
valid and legally binding obligation of such Investor.
3.2 Purchase Entirely for Own Account. This Agreement is made with each
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the Series D Preferred Stock to be purchased by such Investor and the
Series D-1 Preferred Stock and the Common Stock issuable upon conversion thereof
(collectively, the "Securities") will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities.
3.3 Reliance Upon Investors' Representations. Each Investor understands
that the Series D Preferred Stock is not, and any Series D-1 Preferred Stock or
any Common Stock acquired on conversion thereof at the time of issuance may not
be, registered under the Securities Act on the ground that the sale provided for
in this Agreement and the issuance of securities hereunder is exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, and that
the Company's reliance on such exemption is predicated on the Investors'
representations set forth herein. Each Investor realizes that the basis for the
exemption may not be present if, notwithstanding such representations, the
Investor has in mind merely acquiring the Securities for a fixed or determinable
period in the future, or for a market rise, or for sale if the market does not
rise. No Investor has any such intention.
10.
<PAGE> 14
3.4 Receipt of Information. Each Investor represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Series D Preferred Stock and the
business, properties, prospects and financial condition of the Company and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to it or to which
it had access. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.
3.5 Investment Experience. Each Investor represents that it is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities. If other than an individual, Investor
also represents it has not been organized for the purpose of acquiring the
Securities.
3.6 Accredited Investor. Each Investor as to itself severally and not
jointly further represents to the Company that except as otherwise disclosed to
the Company, in writing, prior to its execution hereof:
3.6.1 such Investor is an "Accredited Investor" (as defined in the
rules and regulations promulgated under the Securities Act); or
3.6.2 the capital contribution of the Investor does not exceed 10%
of the Investor's net worth or, in the case of an individual, joint net worth
with that person's spouse.
3.7 Restricted Securities. Each Investor understands that the Securities
may not be sold, transferred or otherwise disposed of without registration under
the Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Securities must be
held indefinitely. In particular, each Investor is aware that the Securities may
not be sold pursuant to Rule 144 promulgated under the Securities Act unless all
of the conditions of that Rule are met. Among the conditions for use of Rule 144
is the availability of current information to the public about the Company. Such
information is not now available and the Company has no present plans to make
such information available.
3.8 Legends. To the extent applicable, each certificate or other
document evidencing any of the Securities shall be endorsed with the legends set
forth below, and each Investor covenants that, except to the extent such
restrictions are waived by the Company, such Investor shall not transfer the
shares represented by any such certificate without complying with the
restrictions on transfer described in the legends endorsed on such certificate:
11.
<PAGE> 15
3.8.1 The following legend under the Securities Act:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH
RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
3.8.2 In the case of an Investor who is not a citizen or resident of
the United States or Canada, or any state, territory or possession thereof,
including but not limited to any estate of any such person, or any corporation,
partnership, trust or other entity created or existing under the laws thereof,
or any entity controlled or owned by any of the foregoing (a "U.S. Person") and
is not an Accredited Investor:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF PRIOR TO ONE YEAR FROM THE DATE OF THE CLOSING
AT WHICH SUCH SHARES WERE PURCHASED, WITHIN THE UNITED STATES,
CANADA, THEIR TERRITORIES AND POSSESSIONS OR ANY AREA SUBJECT TO
THEIR JURISDICTION OR TO ANY CITIZEN OR RESIDENT OF THE UNITED
STATES OR CANADA, OR ANY STATE, TERRITORY OR POSSESSION THEREOF,
INCLUDING ANY ESTATE OF SUCH PERSON OR ANY CORPORATION, PARTNERSHIP,
TRUST OR OTHER ENTITY CREATED OR EXISTING UNDER THE LAWS THEREOF,
AND THEREAFTER MAY NOT BE SO TRANSFERRED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
3.9 Public Sale. Each Investor agrees not to make, without the prior
written consent of the Company, any public offering or sale of the Securities,
although permitted to
12.
<PAGE> 16
do so pursuant to Rule 144(k) promulgated under the Securities Act, until the
earlier of (i) the date on which the Company effects its initial registered
public offering pursuant to the Securities Act or (ii) the date on which it
becomes a registered company pursuant to section 12(g) of the Securities
Exchange Act of 1934, as amended, or (iii) August 17, 2000.
3.10 Non-U.S. Person. If Investor is not a U.S. Person, such Investor
hereby represents that it has satisfied itself as to the full observance of the
laws of its jurisdiction in connection with any invitation to subscribe for the
shares of Series D Preferred Stock offered hereunder or any use of this
Agreement, including (i) the legal requirements within its jurisdiction for the
purchase of such shares, (ii) any foreign exchange restrictions applicable to
such purchase, (iii) any governmental or other consents which may need to be
obtained and (iv) the income tax and other tax consequences, if any, which may
be relevant to the purchase, holding, redemption, sale or transfer of the
Interest. Such Investor's subscription and payment for, and its continued
beneficial ownership of the shares of Series D Preferred Stock offered hereunder
will not violate any applicable securities or other laws of its jurisdiction.
4. Covenants of the Company.
4.1 Continuing Covenants. So long as any shares of Preferred Stock are
outstanding, the Company shall not, without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of a majority of the
shares of Preferred Stock then outstanding:
4.1.1 change the authorized number of directors to be other than
between five (5) and nine (9); or
4.1.2 put into place or effect any acceleration of vesting of stock
options or waiver of repurchase rights with respect to stock beneficially held
by an employee or consultant of the Company, each in the event of a sale of all
or substantially all of the assets of the Company, a merger of the Company with
or into another entity or a liquidation of the Company.
5. Conditions of Investor's Obligations at Closing. The obligations of each
Investor under Section 1.1.2 or Section 1.2 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the date of the Closing.
13.
<PAGE> 17
5.2 Performance. The Company shall have performed and complied with all
agreements, obligations, covenants and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
5.3 Compliance Certificate. The President of the Company shall deliver
to each Investor at the Closing a certificate certifying that the conditions
specified in paragraphs 5.1, 5.2, 5.4, 5.6, 5.8, 5.9 and 5.10 have been
fulfilled.
5.4 Qualifications. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Series D Preferred Stock pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
5.5 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investors' special counsel, which shall have received all such counterpart
original and certified or other copies of such documents as it may reasonably
request.
5.6 Small Business Concern Documents. The Company shall have executed
and delivered to each Investor who requests them, a Size Status Declaration on
SBA Form 480 and an Assurance of Compliance on SBA Form 652, and shall have
provided to each Investor who so requests information necessary for the
preparation of a Portfolio Financing Report on SBA Form 1031.
5.7 Opinion of Company Counsel. Each Investor shall have received from
Brobeck, Phleger & Harrison, counsel for the Company, an opinion, dated the date
of the Closing, in form and substance satisfactory to special counsel to the
Investors.
5.8 Investors' Rights Agreement. The Company and each Investor shall
have entered into the Investors' Rights Agreement in the form attached as
Exhibit B.
5.9 Co-Sale Agreements. Vicente Anido, Robert Curtis, Peter Myers, Steve
Teig, Sydney Brenner, Kim Janda, Chi-Huey Wong and Dale Boger (collectively, the
"Founders"), a majority of the Shareholders (as defined thereunder) and the
Company shall each have entered into a Co-Sale Agreement in the form attached
hereto as Exhibit D.
5.10 Filing of Restated Articles. The Company shall adopt and file with
the Secretary of State of California the Restated Articles, and such Restated
Articles shall have been accepted for filing by the Secretary of State of
California.
6. Conditions of the Company's Obligations at Closing. The obligations of the
Company to each Investor under this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions by that Investor:
14.
<PAGE> 18
6.1 Representations and Warranties. The representations and warranties
of the Investor contained in Section 3 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the Closing.
6.2 Qualifications. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Series D Preferred Stock pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6.3 Co-Sale Agreements. The Founders, a majority of the Shareholders (as
defined thereunder) and the Company shall each have entered into a Co-Sale
Agreement in the form attached hereto as Exhibit D.
7. Miscellaneous.
7.1 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
7.2 Survival of Warranties. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
7.3 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
permitted transferees of any shares of Series D Preferred Stock sold hereunder
or any Series D-1 Preferred Stock or any Common Stock issued upon conversion
thereof). Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
7.4 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
7.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
15.
<PAGE> 19
7.7 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified by hand or professional
courier service or five (5) days after deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties.
7.8 Finder's Fees. Except for a finder's fee of $80,000 owed by the
Company to Hanuko Dumas, each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction.
Each Investor agrees to indemnify and to hold harmless the Company from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Investor or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
7.9 Expenses. Irrespective of whether the Closing is effected, the
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Closing is effected, the Company shall, at the Closing, reimburse the reasonable
fees of special counsel for the Investors of not more than $20,000 and shall,
upon receipt of a bill therefor, reimburse the reasonable out-of-pocket expenses
of such counsel incurred in connection with the Closing.
7.10 Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the Investors' Rights
Agreement or the Restated Articles, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
7.11 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of more than 50% of the
Common Stock (that has not been sold to the public) issued or issuable upon
conversion of the Series D Preferred Stock (or Series D-1 Preferred Stock). Any
amendment or waiver effected in accordance with this Section shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities have been
converted), each future holder of all such securities and the Company.
16.
<PAGE> 20
7.12 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.13 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
7.14 Exculpation Among Investors. Each Investor acknowledges that it is
not relying upon any person, firm or corporation, other than the Company and its
officers and directors, in making its investment or decision to invest in the
Company. Each Investor agrees that no Investor nor the respective controlling
persons, officers, directors, partners, agents or employees of any Investor
shall be liable for any action heretofore or hereafter taken or omitted to be
taken by any of them in connection with the Series D Preferred Stock (and Common
Stock issued upon conversion thereof).
[Remainder of This Page Intentionally Left Blank]
17.
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: /s/ Vicente Anido
-------------------------------------
Vicente Anido, President
INVESTORS:
---------------------------------
NAME OF INVESTOR
By:______________________________________
Title:___________________________________
Address:_________________________________
_________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: _____________________________________
Vicente Anido, President
INVESTORS:
Japan Associated Finance Co., Ltd.
-----------------------------------------
NAME OF INVESTOR
By: /s/ Masaki Yoshida
-------------------------------------
Title: President
----------------------------------
Address:_________________________________
_________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: _____________________________________
Vicente Anido, President
INVESTORS:
JAFCO G-5 Investment Enterprise Partnership
-----------------------------------------
NAME OF INVESTOR
By: /s/ Masaki Yoshida
-------------------------------------
President Japan Associated Finance Co., Ltd
Title: Its Executive Partner
----------------------------------
Address:_________________________________
_________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: _____________________________________
Vicente Anido, President
INVESTORS:
JAFCO R-1(A) Investment Enterprise Partnership
-----------------------------------------
NAME OF INVESTOR
By: /s/ Masaki Yoshida
-------------------------------------
President Japan Associated Finance Co., Ltd
Title: Its Executive Partner
----------------------------------
Address:_________________________________
_________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: _____________________________________
Vicente Anido, President
INVESTORS:
JAFCO R-1(B) Investment Enterprise Partnership
-----------------------------------------
NAME OF INVESTOR
By: /s/ Masaki Yoshida
-------------------------------------
President Japan Associated Finance Co., Ltd
Title: Its Executive Partner
----------------------------------
Address:_________________________________
_________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: _____________________________________
Vicente Anido, President
INVESTORS:
JAFCO R-2 Investment Enterprise Partnership
-----------------------------------------
NAME OF INVESTOR
By: /s/ Masaki Yoshida
-------------------------------------
President Japan Associated Finance Co., Ltd
Title: Its Executive Partner
----------------------------------
Address:_________________________________
_________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: _____________________________________
Vicente Anido, President
INVESTORS:
Brentwood Associates VII, L.P.
By: Brentwood VII Ventures Its General Partner
-----------------------------------------
NAME OF INVESTOR
By: /s/ illegible
-------------------------------------
Title: General Partner
----------------------------------
Address:_________________________________
_________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: _____________________________________
Vicente Anido, President
INVESTORS:
S.R. One, Limited
-----------------------------------------
NAME OF INVESTOR
By: /s/ Donald G. Parman
-------------------------------------
Title: Vice President
----------------------------------
Address: Bay Colony Executive Park
---------------------------------
565 E. Swedesford Road, Suite 315
---------------------------------
Wayne, PA 19087
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
Sprout Capital VII, L.P.
--------------------------------------------
NAME OF INVESTOR
By: /s/ Pierre Chambon
----------------------------------------
Title: Vice President Sprout Group
-------------------------------------
Address: ___________________________________
___________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 30
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
DLJ Capital Corporation
--------------------------------------------
NAME OF INVESTOR
By: /s/ Pierre Chambon
----------------------------------------
Title: Vice President Sprout Group
-------------------------------------
Address: ___________________________________
___________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
C.V. Sofinnova Ventures Partners III
--------------------------------------------
NAME OF INVESTOR
By: /s/ Alix Marduel, M.D.
----------------------------------------
Title: General Partner Sofinnova Management L.P.
-------------------------------------
Address: ___________________________________
___________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 32
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
SINGAPORE BIO-INNOVATIONS PTE LTD
--------------------------------------------
NAME OF INVESTOR
By: /S/ Yong-Sea Teoh
----------------------------------------
Title: Director & General Manager
-------------------------------------
Address: 250 North Bridge Road #2400
-----------------------------------
Raffles City Tower
-----------------------------------
Singapore 179101
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
SEQUOIA CAPITAL VI
SEQUOIA TECHNOLOGY PARTNERS VI
SEQUOIA 1995
--------------------------------------------
NAME OF INVESTOR
By: /s/ Pierre Lamond
----------------------------------------
Title: General Partner
-------------------------------------
Address: ___________________________________
___________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
Paine Webber, Custodian FBO
Michael Grossman, IRA R/O
--------------------------------------------
NAME OF INVESTOR
By: /s/ illegible
----------------------------------------
Title: Branch Manager
-------------------------------------
Address: 600 W. Broadway, Suite 2000
-----------------------------------
San Diego, CA 92103
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
Steven M. Lash
--------------------------------------------
NAME OF INVESTOR
By: /s/ Steven M. Lash
----------------------------------------
Title:
-------------------------------------
Address: 13342 Mira Loma Ct.
-----------------------------------
Poway, CA 92064
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 36
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
STEPHEN J. KANDEL
--------------------------------------------
NAME OF INVESTOR
By: /s/ Steven J. Kandel
----------------------------------------
Title:
-------------------------------------
Address: 1021 Muirlands Drive
-----------------------------------
La Jolla, CA 92037
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
BYRON FRANZEN
--------------------------------------------
NAME OF INVESTOR
By: /s/ Byron Franzen
----------------------------------------
Title:
-------------------------------------
Address: ___________________________________
___________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 38
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
The M. L. Lawrence Trust
--------------------------------------------
NAME OF INVESTOR
By: /s/ Rebecca Wood
----------------------------------------
Title: Trustee
-------------------------------------
Address: 1500 Orange Avenue
-----------------------------------
Coronado, CA 92118
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
FARLEY INC.
--------------------------------------------
NAME OF INVESTOR
By: /s/ Jeffrey Schroeder
----------------------------------------
Title: Chief Financial Officer
-------------------------------------
Address: 233 South Wacker Drive, 5000 Sears
Tower
-----------------------------------
Chicago, IL 60606
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 40
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
SORRENTO VENTURE II, L.P.
--------------------------------------------
NAME OF INVESTOR
By: /s/ Robert M. Jaffe
----------------------------------------
President, Sorrento Associates, Inc.
General Partner, Sorrento Equity Partners L.P.
Title: General Partner, Sorrento Ventures II, L.P.
-------------------------------------
Address: 4370 La Jolla Village Dr., Ste 1040
-----------------------------------
San Diego, CA 92122
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 41
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
SORRENTO GROWTH PARTNERS I, L.P.
--------------------------------------------
NAME OF INVESTOR
By: /s/ Robert M. Jaffe
----------------------------------------
President, Sorrento Growth, Inc.
General Partner, Sorrento Equity Growth Partners I, L.P.
Title: General Partner, Sorrento Growth Partners I, L.P.
-------------------------------------
Address: 4370 La Jolla Village Dr., Ste 1040
-----------------------------------
San Diego, CA 92122
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 42
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
COMDISCO, INC.
--------------------------------------------
NAME OF INVESTOR
By: /s/ Jill C. Hansen
----------------------------------------
Title: Assistant Vice President
-------------------------------------
Address: 6111 N. River Rd.
-----------------------------------
Rosemont, IL 60018
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 43
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
Brinson Venture Capital Fund III, L.P.
by its general partner, Brinson Partners, Inc.
--------------------------------------------
NAME OF INVESTOR
By: /s/ Terry Gould
----------------------------------------
Title: Partner Brinson Partners, Inc.
-------------------------------------
Address: c/o Brinson Partners, Inc.
-----------------------------------
209 South LaSalle Street Suite 114
-----------------------------------
Chicago, IL 60604-1295
Brinson Trust Company as Trustee of the
Brinson MAP Venture Capital Fund III
--------------------------------------------
NAME OF INVESTOR
By: /s/ Terry Gould
----------------------------------------
Title: Assistant Trust Officer Brinson Trust
Company
-------------------------------------
Address: c/o Brinson Partners, Inc.
-----------------------------------
209 South LaSalle Street Suite 114
-----------------------------------
Chicago, IL 60604-1295
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 44
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
TODD SCHMIDT
--------------------------------------------
NAME OF INVESTOR
By: /s/ Todd Schmidt
----------------------------------------
Title:
-------------------------------------
Address: 20740 Elfin Forrest Road
-----------------------------------
Escondido, CA 92029
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 45
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
Vicente Anido, Jr.
--------------------------------------------
NAME OF INVESTOR
By: /s/ Vicente Anido, Jr.
----------------------------------------
Title: President & CEO
-------------------------------------
Address: 1621 Baipide Drive
-----------------------------------
Corona del Mar, CA 92625
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 46
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
JOHN T. CHAMBERS
--------------------------------------------
NAME OF INVESTOR
By: /s/ John T. Chambers
----------------------------------------
Title: Anido designee
-------------------------------------
Address: 1980 Alpha Road
-----------------------------------
Charleston, WV 25304
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 47
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
THE RUFUS L. MCRACKEN TRUST, DATED 6/21/91
--------------------------------------------
NAME OF INVESTOR
By: /s/ Lee R. McCracken
----------------------------------------
Title: Trustee
-------------------------------------
Address: 410 Flint Ave
-----------------------------------
Long Beach, CA 90814
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 48
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
STEVEN TEIG
--------------------------------------------
NAME OF INVESTOR
By: /s/ Steven Teig
----------------------------------------
Title:
-------------------------------------
Address: ___________________________________
___________________________________
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 49
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
FORWARD VENTURES II., L.P.
--------------------------------------------
NAME OF INVESTOR
By: /s/ Ivor Royston
----------------------------------------
Title: General Partner
-------------------------------------
Address: 10975 Torreyana Rd., Ste 230
-----------------------------------
San Diego, CA 92121
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 50
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
LYNNE CAPORALE
--------------------------------------------
NAME OF INVESTOR
By: /s/ Lynn Caporale
----------------------------------------
Title: Vice President
-------------------------------------
Address: 8115 Camino del Sol
-----------------------------------
La Jolla, CA 92037
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 51
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMBICHEM, INC.
By: ________________________________________
Vicente Anido, President
INVESTORS:
Faye Hunter Russell Trust U/A Dtd 7/11/88
--------------------------------------------
NAME OF INVESTOR
By: /s/ Faye Hunter Russell
----------------------------------------
Title: Trustee
-------------------------------------
Address: P.O. Box 1759
-----------------------------------
La Jolla, CA 92038
-----------------------------------
[SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE> 52
EXHIBIT A
Amended and Restated
Articles of Incorporation
<PAGE> 53
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF COMBICHEM, INC.,
a California Corporation
The undersigned Vicente Anido and Faye Russell hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The Articles of Incorporation of said corporation shall be amended
and restated to read in full as follows:
ARTICLE I
The name of this corporation is CombiChem, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is One Hundred Forty-Three Million One Hundred Seventy-Six Thousand Two Hundred
Ninety-Six (143,196,296) shares. Eighty Million (80,000,000) shares shall be
Common Stock and Sixty Three Million One Hundred Seventy-Six Thousand Two
Hundred Ninety-Six (63,196,296) shares shall be Preferred Stock. The Preferred
Stock authorized by these Restated Articles of Incorporation shall be issued by
series as set forth herein. The first series of Preferred Stock shall be
designated "Series A Preferred Stock" and shall consist of One Million
(1,000,000) shares. The second series of Preferred Stock shall be designated
"Series B Preferred Stock" and shall consist of Two Million Two Hundred
Twenty-Six Thousand Six Hundred Sixty-Seven (2,226,667) shares. The third series
of Preferred Stock shall be designated "Series C Preferred Stock" and shall
consist of Seventeen Million Five Hundred Nineteen Thousand Seven Hundred
Seventy-Six (17,519,776) shares. The fourth series of Preferred Stock shall be
designated "Series D Preferred Stock" and shall consist of Nine Million Eight
Hundred Fifty-Nine Thousand Two Hundred Five (9,869,205) shares. The fifth
series of Preferred Stock shall be designated "Series J Preferred Stock" and
shall consist of Four Hundred Sixty- Five Thousand (465,000) shares. The sixth
series of Preferred Stock shall be designated "Series Z Preferred Stock" and
shall consist of One Million Five Hundred Thousand
<PAGE> 54
(1,500,000) shares. The seventh series of Preferred Stock shall be designated
"Series A-1 Preferred Stock: and shall consist of One Million (1,000,000)
shares. The eighth series of Preferred Stock shall be designated "Series B-1
Preferred Stock" and shall consist of Two Million Two Hundred Twenty-Six
Thousand Six Hundred Sixty-Seven (2,226,667) shares. The ninth series of
Preferred Stock shall be designated "Series C-1 Preferred Stock" and shall
consist of Seventeen Million Five Hundred Nineteen Thousand Seven Hundred
Seventy-Six (17,519,776) shares. The tenth series of Preferred Stock shall be
designated "Series D-1 Preferred Stock" and shall consist of Nine Million Eight
Hundred Fifty-Nine Thousand Two Hundred Five (9,869,205) shares.
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by these Restated Articles of Incorporation may be
issued from time to time in one or more series. The rights, preferences,
privileges and restrictions granted to and imposed on the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock, the Series J Preferred Stock, the Series Z Preferred Stock, the
Series A-1 Preferred Stock, the Series B-1 Preferred Stock, the Series C-1
Preferred Stock and the Series D-1 Preferred Stock are as set forth below in
this Article III(B). Subject to compliance with applicable protective voting
rights ("Protective Provisions") which have been or may be granted to the
Preferred Stock or any series thereof in Certificates of Determination or this
corporation's Articles of Incorporation, as amended from time to time, the Board
of Directors is also authorized to increase or decrease the number of shares of
any series (other than the Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series
A-1 Preferred Stock, the Series B-1 Preferred Stock, the Series C-1 Preferred
Stock and the Series D-1 Preferred Stock), prior or subsequent to the issue of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
1. Dividend Provisions.
(a) The holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock and Series D-1 Preferred Stock shall be entitled to receive
dividends in any fiscal year, out of any assets legally available therefor,
prior and in preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this corporation) on the Series J Preferred Stock or
the Common Stock of this corporation, at the rate of $0.04 per share of Series A
Preferred Stock, $0.06 per share of Series B Preferred Stock, $0.0496 per share
of Series C Preferred Stock, $0.08 per share of Series D Preferred Stock, $0.04
per share of Series Z Preferred Stock, $0.04 per share of Series A-1 Preferred
Stock, $0.06 per share of Series B-1 Preferred Stock, $0.0496 per share of
Series C-1 Preferred Stock and $0.08 per share of Series D-1 Preferred Stock
(each subject
2.
<PAGE> 55
to appropriate adjustments for stock splits, stock dividends, combinations or
other recapitalizations) per annum, payable quarterly when, as and if declared
by the Board of Directors. Such dividends shall not be cumulative. After full
dividends on the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Series Z Preferred
Stock, the Series A-1 Preferred Stock, the Series B-1 Preferred Stock, the
Series C-1 Preferred Stock and the Series D-1 Preferred Stock for all past
dividend periods and the then current dividend period have been paid, the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series Z Preferred Stock, Series
A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock and the holders of shares of Series J Preferred Stock
and Common Stock shall participate ratably in any dividends or other
distributions (as distributions are defined below).
(b) For purposes of this subsection 1, unless the context
otherwise requires, "distribution(s)" shall mean the transfer of cash or
property without consideration, whether by way of dividend or otherwise, or the
purchase or redemption of shares of this corporation (other than repurchases of
common stock held by directors, employees or consultants of this corporation
upon termination of their employment or services pursuant to agreements
providing for such repurchase) for cash or property, including any such
transfer, purchase or redemption by a subsidiary of this corporation.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of this corporation to the holders of
Series J Preferred Stock or Common Stock by reason of their ownership thereof,
an amount per share equal to the sum of (i) $0.50 for each outstanding share of
Series A Preferred Stock (the "Original Series A Issue Price"), (ii) $0.75 for
each outstanding share of Series B Preferred Stock (the "Original Series B Issue
Price"), (iii) $0.62 for each outstanding share of Series C Preferred Stock (the
"Original Series C Issue Price"), (iv) $1.00 for each outstanding share of
Series D Preferred Stock (the "Original Series D Issue Price"), (v) $0.50 for
each outstanding share of Series Z Preferred Stock (the "Original Series Z Issue
Price"), (vi) $0.50 for each outstanding share of Series A-1 Preferred Stock
(the "Original Series A-1 Issue Price"), (vii) $0.75 for each outstanding share
of Series B-1 Preferred Stock (the "Original Series B-1 Issue Price"), (viii)
$0.62 for each outstanding share of Series C-1 Preferred Stock (the "Original
Series C-1 Issue Price"), (ix) $1.00 for each outstanding share of Series D-1
Preferred Stock (the "Original Series D-1 Issue Price") (each subject to
appropriate adjustments for stock splits, stock dividends, combinations or other
recapitalizations) and (x) an amount equal to declared but unpaid dividends on
such share of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock, respectively. If upon the occurrence of such event,
the assets and funds thus
3.
<PAGE> 56
distributable among the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock and Series D-1 Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then, subject to the rights of series of Preferred Stock that may from time to
time come into existence, the entire assets and funds of the corporation legally
available for distribution shall be distributed (x) first ratably among the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
in proportion to the aggregate liquidation preferences of each respective
series, and ratably among the holders of that series in proportion to the amount
of such stock owned by each such holder, and (y) thereafter ratably among the
holders of the Series Z Preferred Stock in proportion to the amount of such
stock owned by each such holder.
(b) Upon the completion of the distribution required by
subparagraph (a) of this Section 2 and any other distribution that may be
required with respect to series of Preferred Stock that may from time to time
come into existence, the remaining assets of the corporation available for
distribution to shareholders shall be distributed among the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock, Series
D-1 Preferred Stock and Common Stock pro rata based on the number of shares of
Common Stock held by each (with each share of Preferred Stock participating on
an "as-converted-into-Common- Stock" basis).
(c) A consolidation or merger of this corporation with or into any
other corporation or corporations in which fifty percent (50%) or more of the
voting power of the corporation held by the shareholders of the corporation
immediately prior to the merger or consolidation is transferred (excluding
reincorporations of the corporation the sole purpose of which is to change the
state of incorporation), or a sale, conveyance or disposition of all or
substantially all of the assets of this corporation or the effectuation by the
corporation of a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the corporation is transferred,
shall be deemed to be a liquidation, dissolution or winding up within the
meaning of this Section 2.
3. Redemption.
(a) At any time after December 31, 1998, but within forty-five
(45) days (the "Redemption Date") after the receipt by this corporation of a
written request from the holders of not less than seventy percent (70%) of the
then outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock treated as a single class, that all of such holders' shares be redeemed,
and immediately prior to the surrender by such holders of the certificates
representing such shares, this corporation shall, to the extent it may lawfully
do so, redeem all of the then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series
4.
<PAGE> 57
D Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock,
Series C-1 Preferred Stock and Series D-1 Preferred Stock by paying in cash
therefor a sum per share equal to the Original Series A Issue Price (as adjusted
for any stock dividends, combinations or splits with respect to such share) plus
an amount equal to declared but unpaid dividends on such share for each share of
Series A Preferred Stock, the Original Series B Issue Price (as adjusted for any
stock dividends, combinations or splits with respect to such share) plus an
amount equal to declared but unpaid dividends on such share for each share of
Series B Preferred Stock, the Original Series C Issue Price (as adjusted for any
stock dividends, combinations or splits with respect to such share) plus an
amount equal to declared but unpaid dividends on such share for each share of
Series C Preferred Stock, the Original Series D Issue Price (as adjusted for any
stock dividends, combinations or splits with respect to such share) plus an
amount equal to declared but unpaid dividends on such share for each share of
Series D Preferred Stock, the Original Series A-1 Issue Price (as adjusted for
any stock dividends, combinations or splits with respect to such share) plus an
amount equal to declared but unpaid dividends on such share for each share of
Series A-1 Preferred Stock, the Original Series B-1 Issue Price (as adjusted for
any stock dividends, combinations or splits with respect to such share) plus an
amount equal to declared but unpaid dividends on such share for each share of
Series B-1 Preferred Stock, the Original Series C-1 Issue Price (as adjusted for
any stock dividends, combinations or splits with respect to such share) plus an
amount equal to declared but unpaid dividends on such share for each share of
Series C-1 Preferred Stock and the Original Series D-1 Issue Price (as adjusted
for any stock dividends, combinations or splits with respect to such share) plus
an amount equal to declared but unpaid dividends on such share for each share of
Series D-1 Preferred Stock (such amounts are hereinafter referred to herein as
the "Redemption Prices").
(b) Not less than fifteen (15) days prior to the Redemption Date,
written notice shall be mailed, first class postage prepaid, to each holder of
record (at the close of business on the business day next preceding the day on
which notice is given) of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1
Preferred Stock at the address last shown on the records of this corporation for
such holder, notifying such holder of the redemption to be effected, specifying
the number of shares to be redeemed from such holder (which shall be all of the
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock held
by such holder), the Redemption Date, the Redemption Prices of each of the
respective series to be redeemed from such holder, the place at which payment
may be obtained and calling upon such holder to surrender to this corporation,
in the manner and at the place designated, his, her or its certificate or
certificates representing all of the shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock held by such holder (the "Redemption
Notice"). Except as provided in subsection 3(c) of this Division B of Article
III, on or after the Redemption Date, each holder of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock shall surrender to this corporation the
certificate or certificates representing such shares, in the
5.
<PAGE> 58
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Prices of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof and
each surrendered certificate shall be cancelled.
(c) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Prices, all rights of the holders of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock as
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock,
respectively (except the right to receive the respective Redemption Prices
without interest upon surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of this corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the corporation legally available for
redemption of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock on the Redemption Date are insufficient to redeem the total number of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series A- 1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock on
such date, those funds which are legally available will be used to redeem the
maximum possible number of such shares ratably among the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock and Series D-1 Preferred Stock in proportion to the
Redemption Prices of the respective series, and ratably among the holders of
each series in proportion to the amount of such stock owned by each such holder.
Notwithstanding anything herein to the contrary, the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock and Series D-1 Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. At
any time thereafter when additional funds of the corporation are legally
available for the redemption of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock, such funds will immediately be used to redeem the
balance of the shares which the corporation has become obliged to redeem on the
Redemption Date but which it has not redeemed.
(d) The shares of Series J Preferred Stock and Series Z Preferred
Stock are not redeemable.
4. Conversion. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1
6.
<PAGE> 59
Preferred Stock and Series D-1 Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share and, in the case of the shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock, on or prior to
the fifth day prior to the Redemption Date, if any, as may have been fixed in
the Redemption Notice, at the office of this corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (i) the Original Series A Issue Price
for each share of Series A Preferred Stock, (ii) the Original Series B Issue
Price for each share of Series B Preferred Stock, (iii) the Original Series C
Issue Price for each share of Series C Preferred Stock, (iv) the Original Series
D Issue Price for each share of Series D Preferred Stock, (v) $0.10 for each
share of Series J Preferred Stock (the "Original Series J Issue Price"), (vi)
the Original Series Z Issue Price for each share of Series Z Preferred Stock,
(vii) the Original Series A-1 Issue Price for each share of Series A-1 Preferred
Stock, (viii) the Original Series B-1 Issue Price for each share of Series B-1
Preferred Stock, (ix) the Original Series C-1 Issue Price for each share of
Series C-1 Preferred Stock and (x) the Original Series D-1 Issue Price for each
share of Series D-1 Preferred Stock, in each case by the Conversion Price at the
time in effect for such share. The initial Conversion Price per share for shares
of Series A Preferred Stock shall be the Original Series A Issue Price, for
shares of Series B Preferred Stock shall be the Original Series B Issue Price,
for shares of Series C Preferred Stock shall be the Original Series C Issue
Price, for shares of Series D Preferred Stock shall be the Original Series D
Issue Price, for shares of Series J Preferred Stock shall be the Original Series
J Issue Price, for shares of Series Z Preferred Stock shall be the Original
Series Z Issue Price, for shares of Series A-1 Preferred Stock shall be the
Original Series A-1 Issue Price, for shares of Series B-1 Preferred Stock shall
be the Original Series B-1 Issue Price, for shares of Series C-1 Preferred Stock
shall be the Original Series C-1 Issue Price and for shares of Series D-1
Preferred Stock shall be the Original Series D-1 Issue Price; provided, however,
that the Conversion Price for the Series A Preferred Stock, the Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and the
Series Z Preferred Stock shall each be subject to adjustment as set forth in
subsections 4(d) and 4(e) of this Division B of Article III and the Conversion
Price for the Series J Preferred Stock, the Series A-1 Preferred Stock, the
Series B-1 Preferred Stock, the Series C-1 Preferred Stock and the Series D-1
Preferred Stock shall be subject to adjustment as set forth in subsection 4(e)
of this Division B of Article III.
(b) Automatic Conversion. Each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock shall automatically be converted into shares of Common Stock at the
Conversion Price at the time in effect for such series immediately upon the
earlier of (i) the closing of the corporation's sale of its Common
7.
<PAGE> 60
Stock in a firm commitment underwritten public offering pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended,
the public offering price of which (exclusive of underwriting discounts,
commissions and expenses) is not less than $4.00 per share (adjusted to reflect
subsequent stock dividends, stock splits or recapitalizations) and $12,000,000
in the aggregate or (ii) the date specified by written consent or agreement of
the holders of at least seventy percent (70%) of the then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock, voting together as a single class.
(c) Mechanics of Conversion. Before any holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock or
Series D-1 Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he, she or it shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this corporation or of any transfer
agent for such stock and shall give written notice to this corporation at its
principal corporate office of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to each such holder, or to the
nominee or nominees of each such holder, (i) a certificate or certificates for
the number of shares of Common Stock to which each such holder shall be entitled
as aforesaid and (ii) a cash payment of all declared but unpaid dividends on the
converted shares as of the date of conversion. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock to be converted,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock
for conversion, be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and/or Series D-1
Preferred Stock shall not be deemed to have converted such Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A- 1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock or Series D-1
Preferred Stock until immediately prior to the closing of such sale of
securities.
8.
<PAGE> 61
(d) Conversion Price Adjustments of Series A, Series B, Series C,
Series D and Series Z Preferred Stock for Certain Dilutive Issuances. The
Conversion Price of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series Z Preferred Stock
shall be subject to adjustment from time to time as follows:
(i)(A) If the corporation shall issue, after the date upon
which any shares of Series D Preferred Stock were first issued (the "Purchase
Date"), any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall
forthwith (except as otherwise provided in this clause (i)) be adjusted to a
price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (including, without limitation, the number of
shares of Common Stock issuable upon the conversion of the Preferred Stock) plus
the number of shares of Common Stock that the aggregate consideration received
by the corporation for such issuance would purchase at such Conversion Price,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including, without limitation,
the number of shares of Common Stock issuable upon the conversion of the
Preferred Stock) plus the number of shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series Z Preferred Stock shall be made in an amount less than
one cent per share, provided that any adjustments which are not required to be
made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three (3) years
from the date of the event giving rise to the adjustment being carried forward,
or shall be made at the end of three (3) years from the date of the event giving
rise to the adjustment being carried forward. Except to the limited extent
provided for in subsections 4(d)(i)(E)(3) and 4(d)(i)(E)(4) of this Division B
of Article III, no adjustment of such Conversion Price pursuant to this
subsection 4(d)(i) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
9.
<PAGE> 62
(E) In the case of the issuance (whether before, on or after
the applicable Purchase Date) of options or warrants to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options or warrants to purchase or rights to
subscribe for such convertible or exchangeable securities, the following
provisions shall apply for all purposes of this subsection 4(d)(i) and
subsection 4(d)(ii) of this Division B of Article III:
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments)
of such options or warrants to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time such options,
warrants or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subsections 4(d)(i)(C)
and (d)(i)(D) of this Division B of Article III), if any, received by the
corporation upon the issuance of such options, warrants or rights plus the
minimum exercise price provided in such options, warrants or rights
(without taking into account potential antidilution adjustments) for the
Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking
into account potential antidilution adjustments) for any such convertible
or exchangeable securities or upon the exercise of options or warrants to
purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed
to have been issued at the time such securities were issued or such
options, warrants or rights were issued and for a consideration equal to
the consideration, if any, received by the corporation for any such
securities and related options, warrants or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by the
corporation (without taking into account potential antidilution
adjustments) upon the conversion or exchange of such securities or the
exercise of any related options, warrants or rights (the consideration in
each case to be determined in the manner provided in subsections
4(d)(i)(C) and (d)(i)(D) of this Division B of Article III).
(3) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options, warrants or rights or upon
conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series Z Preferred Stock, to the extent in any
way affected by or computed using such
10.
<PAGE> 63
options, warrants, rights or securities, shall be recomputed to reflect
such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the
exercise of any such options, warrants or rights or the conversion or
exchange of such securities.
(4) Upon the expiration of any such options, warrants
or rights, the termination of any such rights to convert or exchange or
the expiration of any options, warrants or rights related to such
convertible or exchangeable securities, the Conversion Price of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series Z Preferred Stock, to the extent in any
way affected by or computed using such options, warrants, rights or
securities or options, warrants or rights related to such securities,
shall be recomputed to reflect the issuance of only the number of shares
of Common Stock (and convertible or exchangeable securities which remain
in effect) actually issued upon the exercise of such options, warrants or
rights, upon the conversion or exchange of such securities or upon the
exercise of the options, warrants or rights related to such securities.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections
4(d)(i)(E)(1) and (2) of this Division B of Article III shall be
appropriately adjusted to reflect any change, termination or expiration of
the type described in either subsection 4(d)(i)(E)(3) or (4) of this
Division B of Article III.
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E) of this
Division B of Article III) by this corporation after the Purchase Date other
than:
(A) shares of Common Stock issued upon conversion of the
Preferred Stock; or
(B) up to 5,020,274 shares of Common Stock (as adjusted for
any stock splits or other recapitalization) issuable or issued to
employees, consultants or directors of this corporation pursuant to stock
option plans or arrangements approved by the Board of Directors of the
corporation; or
(C) Common Stock issued pursuant to a transaction described
in subsection 4(e)(i) of this Division B of Article III; or
(D) shares of Common Stock or warrants to purchase shares of
Common Stock issued in connection with a bona fide acquisition of another
business, whether by merger, consolidation or purchase of assets, or bona
fide equipment leasing transactions unanimously approved by the Board of
Directors of this corporation; or
11.
<PAGE> 64
(E) shares of Preferred Stock issued upon exercise of any
options or warrants to purchase the corporation's Preferred Stock
outstanding as of the Purchase Date.
(e) Conversion Price Adjustments of Preferred Stock for Certain
Splits and Combinations. The Conversion Price of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) In the event the corporation should at any time or from
time to time after the Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock and Series D-1 Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase in
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents with the number of shares issuable with
respect to Common Stock Equivalents determined from time to time in the manner
provided for deemed issuances in subsection 4(d)(i)(E) of this Division B of
Article III.
(ii) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
(f) Other Distributions. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(e)(i) of this
Division B of Article III, then, in each such case for the purpose of this
subsection 4(f), the holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series J Preferred
Stock,
12.
<PAGE> 65
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the corporation into
which their shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock or Series D-1 Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of the
corporation entitled to receive such distribution.
(g) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2 of this Division B of Article III) provision shall
be made so that the holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1
Preferred Stock, respectively, the number of shares of stock or other securities
or property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock after the recapitalization to the end that
the provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock) shall be applicable after that event as
nearly equivalent as may be practicable.
(h) No Impairment. Unless approved in accordance with Sections 6
and 7 of this Division B of Article III, this corporation will not, by amendment
of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
against impairment.
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(i) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock and
the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock pursuant to this
Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. This corporation shall,
upon the written request at any time of any holder of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock or Series D-1 Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustment and readjustment, (B) the Conversion Price for
such series of Preferred Stock at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1
Preferred Stock.
(j) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock,
at least 20 days prior to the date specified therein, a
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notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
(k) Reservation of Stock Issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock and Series D-1 Preferred Stock, in addition to such other
remedies as shall be available to each holder of any of such Preferred Stock,
this corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, using its best efforts to obtain the requisite
shareholder approval of any necessary amendment to these articles.
(l) Notices. Any notice required by the provisions of this Section
4 to be given to the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
this corporation.
(m) Special Mandatory Conversion.
(i) At any time following the Purchase Date, if (a) the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock are entitled to exercise the right
of first refusal (the "Right of First Refusal") set forth in Section 2.3 of the
Amended or Restated Investors' Rights Agreement dated on or about November 16,
1996, by and between this corporation and certain investors, as amended from
time to time (the "Rights Agreement"), with respect to an equity financing of
the corporation in an aggregate amount of at least $500,000 (the "Equity
Financing"), (b) this corporation has complied with its notice obligations, or
such obligations have been waived, under the Right of First Refusal with respect
to such Equity Financing and this corporation thereafter proceeds to consummate
the Equity Financing and (c) such holder, including such holder's affiliates
(collectively, a "Non-Participating Holder") does not by
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exercise of such holder's Right of First Refusal acquire his, her or its Pro
Rata Share (as defined in Section 2.3 of the Rights Agreement) offered in such
Equity Financing (a "Mandatory Offering"), then all of such Non-Participating
Holder's shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and/or Series D Preferred Stock shall automatically and without
further action on the part of such holder be converted effective upon, subject
to and immediately prior to, the consummation of the Mandatory Offering (the
"Mandatory Offering Date") into an equivalent number of shares of Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock, respectively ("Special Mandatory Conversion");
provided, however, that no such conversion shall occur in connection with a
particular Equity Financing if, pursuant to the written request of the Board of
Directors and subject to the approval of the holders of a majority of the
outstanding Preferred Stock, such holder agrees in writing to waive his, her or
its Right of First Refusal with respect to such Equity Financing. Upon
conversion pursuant to this subsection 4(m)(i), the shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D
Preferred Stock so converted shall be cancelled and not subject to reissuance.
(ii) The holder of any shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred
Stock converted pursuant to this subsection 4(m) shall deliver to this
corporation during regular business hours at the office of any transfer agent of
the corporation for the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock or at such other place as
may be designated by the corporation, the certificate or certificates for the
shares so converted, duly endorsed or assigned in blank or to this corporation.
As promptly as practicable thereafter, this corporation shall issue and deliver
to such holder, at the place designated by such holder, a certificate or
certificates for the number of full shares of the Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and/or Series D-1
Preferred Stock to be issued and such holder shall be deemed to have become a
shareholder of record of such Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and/or Series D-1 Preferred Stock on the
Mandatory Offering Date unless the transfer books of this corporation are closed
on that date, in which event he, she or it shall be deemed to have become a
shareholder of record of such Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock and/or Series D-1 Preferred Stock on the next
succeeding date on which the transfer books are open.
(iii) In the event that any shares of Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and/or Series D-1
Preferred Stock are issued, concurrently with such issuance, this corporation
shall use its best efforts to take all such action as may be required, including
amending its Articles of Incorporation, (a) to cancel all authorized shares of
Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred
Stock and Series D-1 Preferred Stock that remain unissued after such issuance,
(b) to create and reserve for issuance upon Special Mandatory Conversion of any
then outstanding Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock a new series of Preferred Stock
equal in number to the number of shares of Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
so cancelled and designated Series A-2 Preferred Stock, Series B-2 Preferred
Stock, Series C-2 Preferred Stock and Series D-2 Preferred Stock, with
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the designations, powers, preferences and rights and the qualifications,
limitations and restrictions identical to those then applicable to the Series
A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock and
Series D-1 Preferred Stock, respectively, except that the Conversion Price for
such shares of Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series
C-2 Preferred Stock and Series D-2 Preferred Stock once initially issued shall
be the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price and the Series D Conversion Price, respectively, in effect
immediately prior to such issuance and (c) to amend the provisions of this
subsection 4(m) to provide that any subsequent Special Mandatory Conversion will
be into shares of Series A-2 Preferred Stock, Series B-2 Preferred Stock, Series
C-2 Preferred Stock and Series D-2 Preferred Stock rather than Series A-1
Preferred Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock or
Series D-1 Preferred Stock, respectively. This corporation shall take the same
actions with respect to the Series A-2 Preferred Stock, Series B-2 Preferred
Stock, Series C-2 Preferred Stock and Series D-2 Preferred Stock and each
subsequently authorized series of Preferred Stock upon initial issuance of
shares of the last such series to be authorized. The right to receive any
dividend declared but unpaid at the time of conversion on any shares of
Preferred Stock converted pursuant to the provisions of this subsection 4(m)
shall accrue to the benefit of the new shares of Preferred Stock issued upon
conversion thereof.
(iv) A copy of the Rights Agreement is on file at the offices
of this corporation and will be made available upon request and without charge.
5. Voting Rights. The holder of each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series J Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1
Preferred Stock or Series D-1 Preferred Stock could then be converted, and with
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any shareholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote. Fractional votes
shall not, however, be permitted and any fractional voting rights available on
an as-converted basis (after aggregating all shares into which shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock, and Series C-1 Preferred Stock and
Series D-1 Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
6. Protective Provisions for Series A, Series B, Series C, Series D,
Series Z, Series A-1, Series B-1, Series C-1 and Series D-1 Preferred Stock. So
long as any shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series Z Preferred Stock, Series
A-1 Preferred Stock, Series B-1 Preferred
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<PAGE> 70
Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock are outstanding,
this corporation shall not without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least seventy percent
(70%) of the then outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock and Series D-1 Preferred Stock, voting together as a single
class:
(a) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock or Series D-1
Preferred Stock so as to affect materially or adversely the shares; or
(b) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series
C-1 Preferred Stock or Series D-1 Preferred Stock; or
(c) reclassify any shares of Common Stock or Preferred Stock to
give those shares a preference over, or to make those shares on a parity with,
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock, Series C-1 Preferred Stock or Series D-1
Preferred Stock with respect to dividends, redemption or voting rights or upon
liquidation; or
(d) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of Common Stock;
provided, however, that this restriction shall not apply to the repurchase of
shares of Common Stock from employees, officers, directors, consultants or other
persons performing services for the Company or any subsidiary pursuant to
agreements under which the Company has the option to repurchase such shares at
cost or upon the occurrence of certain events, such as the termination of
employment.
7. Protective Provisions for Series C and Series C-1 Preferred Stock.
So long as any shares of Series C Preferred Stock or Series C-1 Preferred Stock
are outstanding, this corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of a majority of
the then outstanding shares of Series C Preferred Stock and Series C-1 Preferred
Stock voting together as a single class:
(a) amend the corporation's Articles of Incorporation to alter or
change the rights, preferences or privileges of the shares of Series C Preferred
Stock or Series C-1 Preferred Stock so as to affect materially or adversely the
shares; or
(b) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Series C Preferred Stock or Series C-1
Preferred Stock
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(other than pursuant to subsection (m) of Section 4 of Division B of this
Article III hereof); or
(c) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over, or being on a parity with,
the Series C Preferred Stock or Series C-1 Preferred Stock with respect to
dividends, redemption or voting rights or upon liquidation; or
(d) reclassify any shares of Common Stock to give those shares a
preference over, or to make those shares on a parity with, the Series C
Preferred Stock or Series C-1 Preferred Stock with respect to dividends,
redemption or voting rights or upon liquidation; or
(e) pay dividends upon or redeem, purchase or otherwise acquire
(or pay into or set aside for a sinking fund for such purpose) any share or
shares of Preferred Stock or Common Stock other than shares of Series C
Preferred Stock or Series C-1 Preferred Stock; provided, however, that this
restriction shall not apply to (i) the repurchase of shares of Common Stock from
employees, officers, directors, consultants or other persons performing services
for the Company or any subsidiary pursuant to agreements under which the Company
has the option to repurchase such shares at cost or upon the occurrence of
certain events, such as the termination of employment, or (ii) the redemption of
any share or shares of Preferred Stock in accordance with the provisions of
Section 3 of this Division B of Article III; or
8. Protective Provisions for Series D and Series D-1 Preferred Stock.
So long as any shares of Series D Preferred Stock or Series D-1 Preferred Stock
are outstanding, this corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of a majority of
the then outstanding shares of Series D Preferred Stock and Series D-1 Preferred
Stock voting together as a single class:
(a) amend the corporation's Articles of Incorporation to alter or
change the rights, preferences or privileges of the shares of Series D Preferred
Stock or Series D-1 Preferred Stock so as to affect materially or adversely the
shares; or
(b) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Series D Preferred Stock or Series D-1
Preferred Stock (other than pursuant to subsection (m) of Section 4 of Division
B of this Article III hereof); or
(c) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over, or being on a parity with,
the Series D Preferred Stock or Series D- 1 Preferred Stock with respect to
dividends, redemption or voting rights or upon liquidation; or
(d) reclassify any shares of Common Stock to give those shares a
preference over, or to make those shares on a parity with, the Series D
Preferred Stock or
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<PAGE> 72
Series D-1 Preferred Stock with respect to dividends, redemption or voting
rights or upon liquidation; or
(e) pay dividends upon or redeem, purchase or otherwise acquire
(or pay into or set aside for a sinking fund for such purpose) any share or
shares of Preferred Stock or Common Stock other than shares of Series D
Preferred Stock or Series D-1 Preferred Stock; provided, however, that this
restriction shall not apply to (i) the repurchase of shares of Common Stock from
employees, officers, directors, consultants or other persons performing services
for the Company or any subsidiary pursuant to agreements under which the Company
has the option to repurchase such shares at cost or upon the occurrence of
certain events, such as the termination of employment, or (ii) the redemption of
any share or shares of Preferred Stock in accordance with the provisions of
Section 3 of this Division B of Article III; or
9. Protective Provisions for Series C, Series D, Series C-1 and Series
D-1 Preferred Stock. So long as any shares of Series C Preferred Stock, Series D
Preferred Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of a majority of the
then outstanding shares of Series C Preferred Stock, Series D Preferred Stock,
Series C-1 Preferred Stock and Series D-1 Preferred Stock, voting together as a
single class:
(a) sell, convey or otherwise dispose of or encumber all or
substantially all of its assets or business or merge with or into or consolidate
with any other entity (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of; or
(b) increase the authorized number of directors of the corporation
to more than eight (8).
10. Status of Redeemed or Converted Stock. In the event (a) any shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock, Series C-1 Preferred Stock or Series D-1 Preferred Stock shall be
redeemed pursuant to Section 3 of this Division B of Article III or (b) any
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series J Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock, Series C-1
Preferred Stock or Series D-1 Preferred Stock shall be converted pursuant to
Section 4 of this Division B of Article III, the shares so redeemed or converted
shall be cancelled, together with a like number of shares of Common Stock, and
such shares and shall not be issuable by the corporation. The Articles of
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.
11. Repurchase of Shares. Each holder of an outstanding share of
Preferred Stock shall be deemed to have consented, for purposes of Sections 502,
503 and 506 of the California Corporations Code, to distributions made by the
corporation in connection with the
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<PAGE> 73
repurchase of shares of Common Stock issued to or held by employees, officers,
directors, consultants or other persons performing services for the Company or
any subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares at cost or upon the occurrence of certain events, such as
the termination of employment.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of division B of this Article III.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have
the right to one vote with respect to such share, and shall be entitled to
notice of any shareholders' meeting in accordance with the bylaws of this
corporation, and shall be entitled to vote upon such matters and in such manner
as may be provided by law.
ARTICLE IV
A. Elimination of Liability. The liability of the directors of this
corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
B. Indemnification. This corporation is authorized to provide
indemnification of agents (as defined in Section 317 of the California
Corporations Code) through bylaw provisions, agreements with the agents, vote of
shareholders or disinterested directors, or otherwise in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to applicable limits set forth in Section 204 of
the California Corporations Code with respect to actions for breach of duty to
the corporation and its shareholders.
C. Repeal or Modification. Any repeal or modification of the foregoing
provisions of this Article IV by the shareholders of the corporation shall not
adversely affect any right or protection of an officer or director of the
corporation pursuant to this Article IV existing at the time of such repeal or
modification.
* * *
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THREE: The foregoing amendment has been approved by the Board of Directors
of said corporation.
FOUR: The foregoing amendment and restatement was approved by the holders
of the requisite number of shares of said corporation in accordance with
Sections 902 and 903 of the California Corporations Code; the total number of
outstanding shares of each class entitled to vote with respect to the foregoing
amendment was 2,618,327 shares of Common Stock, 1,000,000 shares of Series A
Preferred Stock, 2,226,667 shares of Series B Preferred Stock, 17,158,486 shares
of Series C Preferred Stock and 532,777 shares of Series Z Preferred Stock. No
shares of Series J Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock or Series C-1 Preferred Stock are outstanding. The number of
shares voting in favor of the foregoing amendment equaled or exceeded the vote
required, such required vote being (1) a majority of the outstanding shares of
Common Stock voting separately, (2) a majority of the outstanding shares of each
of Series A, Series B, Series C and Series Z Preferred Stock, each voting
separately, (3) a majority of the outstanding shares of Preferred Stock, voting
together as a single class, (4) seventy percent (70%) of the outstanding shares
of Series A, Series B, Series C and Series Z Preferred Stock, voting together as
a single class, (5) a majority of the outstanding shares of Series C Preferred
Stock, and (6) a majority of the outstanding shares of Common Stock, Series A,
Series B, Series C and Series Z Preferred Stock, voting together as a single
class.
[Remainder of This Page Intentionally Left Blank]
22.
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IN WITNESS WHEREOF, the undersigned have executed this certificate on
October ___, 1996.
-----------------------------------------
Vicente Anido, President
-----------------------------------------
Faye H. Russell, Secretary
The undersigned certify under penalty of perjury that they have read the
foregoing Amended and Restated Articles of Incorporation and know the contents
thereof, and that the statements therein are true.
Executed at San Diego, California, on October ___, 1996.
-----------------------------------------
Vicente Anido
-----------------------------------------
Faye H. Russell
<PAGE> 76
EXHIBIT B
Amended and Restated
Investors' Rights Agreement
<PAGE> 77
COMBICHEM, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
November 15, 1996
<PAGE> 78
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
REGISTRATION RIGHTS......................................................... 1
1.1 Certain Definitions......................................................... 1
1.2 Requested Registration...................................................... 3
1.3 Company Registration........................................................ 6
1.4 Expenses of Registration.................................................... 7
1.5 Registration on Form S-3.................................................... 8
1.6 Registration Procedures..................................................... 8
1.7 Indemnification............................................................. 10
1.8 Information by Holder....................................................... 12
1.9 Limitations on Registration of Issues of Securities......................... 13
1.10 Rule 144 Reporting.......................................................... 13
1.11 Transfer or Assignment of Registration Rights............................... 13
1.12 Restrictions on Transfer.................................................... 14
1.13 "Market Stand-Off" Agreement................................................ 15
1.14 Allocation of Registration Opportunities.................................... 15
1.15 Delay of Registration....................................................... 16
1.16 Termination of Registration Rights.......................................... 16
SECTION 2 COVENANTS OF THE COMPANY.................................................... 16
2.1 Basic Financial Information................................................. 16
2.2 Additional Information and Rights........................................... 17
2.3 Right of First Refusal...................................................... 18
2.4 Key Person Life Insurance................................................... 20
2.5 Representation on Board of Directors........................................ 21
2.6 Termination of Covenants.................................................... 21
SECTION 3 MISCELLANEOUS............................................................... 21
3.1 Governing Law............................................................... 21
3.2 Successors and Assigns...................................................... 21
3.3 Entire Agreement; Amendment; Waiver......................................... 21
3.4 Notices, etc................................................................ 22
3.5 Delays or Omissions......................................................... 22
3.6 Rights; Separability........................................................ 22
3.7 Information Confidential.................................................... 22
3.8 Titles and Subtitles........................................................ 23
3.9 Counterparts................................................................ 23
</TABLE>
<PAGE> 79
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (this "Agreement")
is made and entered into as of the 15th day of November, 1996 by and among
CombiChem, Inc., a California corporation (the "Company"), and the persons
identified on Exhibit A attached hereto (the "Investors").
RECITALS
WHEREAS, certain of the Investors possess registration rights pursuant to
that certain Investors' Rights Agreement dated August 17, 1995, as amended
through the date hereof between the Company and such Investors (the "Rights
Agreement") and certain of the Investors possess information rights, rights of
first refusal and other rights, and the Company is obligated thereunder,
pursuant to the Rights Agreement; and
WHEREAS, the Rights Agreement may be modified or amended with the written
consent of the Company and the holders of a majority of the Registrable
Securities (as defined in the Rights Agreement) then outstanding; and
WHEREAS, the Investors which are parties thereto, which Investors hold at
least a majority of the Registrable Securities, desire to amend and restate the
Rights Agreement and to accept the rights created pursuant hereto in lieu of the
rights granted to them under the Rights Agreement; and
WHEREAS, certain Investors are parties to the Series D Preferred Stock
Purchase Agreement dated as of the date hereof among the Company and such
Investors (the "Series D Agreement"), certain of the Investors' obligations
under which are conditioned upon the execution and delivery by such Investors
and the Company of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the Investors who are parties to the Rights Agreement agree that
the Rights Agreement shall be amended and restated in its entirety as set forth
herein, and all parties hereto further agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; REGISTRATION RIGHTS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
<PAGE> 80
(a) "Closing" shall mean the date of the initial sale of shares of
the Company's Series D Preferred Stock.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(c) "Holder" shall mean any Investor who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been transferred in compliance with
Section 1.11 hereof.
(d) "Initial Offering" shall mean the Company's first firm
commitment underwritten public offering of its Common Stock registered under the
Securities Act.
(e) "Initiating Holders" shall mean any Holder or Holders who in
the aggregate hold not less than fifty percent (50%) of the outstanding
Registrable Securities. For purposes of such calculation, Holders of Shares
shall be considered to hold the shares of Common Stock then issuable upon
conversion of such Shares.
(f) "JAFCO Funds" shall mean Japan Associated Finance Co., Ltd.
("JAFCO") and certain Investment Enterprise Partnerships affiliated with JAFCO
which are holders of Shares.
(g) "Other Shareholders" shall mean persons other than Holders
who, by virtue of agreements with the Company, are entitled to include their
securities in certain registrations.
(h) "Registrable Securities" shall mean (i) shares of Common Stock
issued or issuable pursuant to the conversion of the Shares and (ii) any Common
Stock issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to or in exchange for or in replacement of the shares referenced in
(i) above; provided, however, that Registrable Securities shall not include any
such securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the transferor's
rights under this Section 1 are not assigned.
(i) The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
(j) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all
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<PAGE> 81
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, fees and disbursements of one
counsel for the Holders (solely with respect to registrations pursuant to
Sections 1.2 and 1.3 hereof), blue sky fees and expenses, expenses of any
regular or special audits incident to or required by any such registration, but
shall not include Selling Expenses (but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the Company).
(k) "Rule 144" shall mean Rule 144 as promulgated by the SEC under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the SEC.
(l) "Rule 145" shall mean Rule 145 as promulgated by the SEC under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the SEC.
(m) "SEC" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time, corresponding
to such act.
(o) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for any Holder (other than the fees and
disbursements of the one counsel included in Registration Expenses).
(p) "Shares" shall mean shares of the Company's Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock held
by the Investors.
1.2 Requested Registration.
(a) Request for Registration. If the Company shall receive from
Initiating Holders at any time or times not earlier than the earlier of (i)
January 1, 1998 or (ii) six (6) months after the effective date of the first
registration statement filed by the Company covering an underwritten offering of
any of its securities to the general public, a written request specifying that
it is made pursuant to this Section 1.2 that the Company effect a registration
with respect to all or a part of the Registrable Securities having a reasonably
anticipated aggregate offering price, net of underwriting discounts and
commissions, that exceeds $12,000,000, the Company will:
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<PAGE> 82
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with the Securities Act) as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within twenty (20) days after such written notice from the Company is effective.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act; or
(B) After the Company has effected two such
registrations pursuant to this Section 1.2(a) and such registrations have been
declared or ordered effective; or
(C) During the period starting with the date of filing
of and ending on a date one hundred eighty (180) days after the effective date
of a registration pursuant to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(D) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made under Section 1.5 hereof.
(b) Subject to the foregoing Section 1.2(a)(ii) (A) through (D),
the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Initiating Holders; provided, however, that if
(i) in the good faith judgment of the Board of Directors of the Company, such
registration would be seriously detrimental to the Company and the Board of
Directors of the Company concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (ii) the Company
shall furnish to such Holders a certificate signed by the president of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for such registration
statement to be filed in the near future and that it is, therefore, essential to
defer the filing of such registration statement, then the Company shall have the
right to defer
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<PAGE> 83
such filing for the period during which such disclosure would be seriously
detrimental, provided, that the Company may not defer the filing for a period of
more than ninety (90) days after receipt of the request of the Initiating
Holders, and, provided further, that (except as provided in Section
1.2(a)(ii)(C) above) the Company shall not defer its obligation in this manner
more than once in any twelve-month period.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 1.2(b) and 1.14 hereof,
include other securities of the Company and may include securities of the
Company being sold for the account of the Company.
(c) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 1.2 and the Company shall include such information in the written notice
referred to in Section 1.2(a)(i) above. The right of any Holder to registration
pursuant to Section 1.2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
(d) Procedures. If the Company shall request inclusion in any
registration pursuant to Section 1.2 of securities being sold for its own
account, or if other persons shall request inclusion in any registration
pursuant to Section 1.2, the Initiating Holders shall, on behalf of all Holders,
offer to include such securities in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this Section 1
(including Section 1.13). The Company shall (together with all Holders, and
other persons proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for such underwriting
by a majority in interest of the Initiating Holders, which underwriter(s) are
reasonably acceptable to the Company. Notwithstanding any other provision of
this Section 1.2, if the representative of the underwriters advises the
Initiating Holders in writing that marketing factors require a limitation on the
number of shares to be underwritten, the number of shares to be included in the
underwriting or registration shall be allocated as set forth in Section 1.14
hereof. If the person who has requested inclusion in such registration as
provided above does not agree to the terms of any such underwriting, such person
shall be excluded therefrom by written notice from the Company, the underwriter
or the Initiating Holders. The securities so excluded shall also be withdrawn
from registration. Any Registrable Securities or other securities excluded shall
also be withdrawn from such registration. If shares are so withdrawn from the
registration and if the number of shares to be included in such registration was
previously reduced as a result of marketing factors pursuant to this Section
1.2(d), then the Company shall offer to all holders who have retained rights to
include securities in the registration the right to include additional
securities
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<PAGE> 84
in the registration in an aggregate amount equal to the number of shares
withdrawn, with such shares to be allocated among such Holders requesting
additional inclusion in accordance with Section 1.14.
1.3 Company Registration.
(a) Company Registration. If the Company shall determine to
register any of its securities either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights (other than pursuant to Section 1.2 hereof), other than a registration
relating solely to employee benefit plans, or a registration relating solely to
a Rule 145 transaction, or a registration on any registration form which does
not permit secondary sales, or the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public,
the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration
(and any related qualification under blue sky laws or other compliance), except
as set forth in Section 1.3(b) below, and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests, made
by any Holder within twenty (20) days after the written notice from the Company
described in Section 1.3(a)(i) above is effective. Such written request may
specify all or a part of a Holder's Registrable Securities for inclusion.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the holders of other securities of the Company
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 1.3, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. The Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated first to the Company for securities being sold for its own
account and thereafter as set forth in Section 1.14. If any person does not
agree to the terms of any such underwriting, he shall be excluded therefrom by
written notice from the Company or the underwriter. Any Registrable
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<PAGE> 85
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the number of
shares of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in accordance
with Section 1.14 hereof.
1.4 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 1.3 and 1.5 hereof, and the first two registrations pursuant to Section
1.2 hereof shall be borne by the Company; provided, however, that if the Holders
bear the Registration Expenses for any registration proceeding begun pursuant to
Section 1.2 and subsequently withdrawn by the Holders registering shares
therein, such registration proceeding shall not be counted as a requested
registration pursuant to Section 1.2 hereof, except in the event that such
withdrawal is based upon material adverse information relating to the Company
that is different from the information known or available (upon request from the
Company or otherwise) to the Holders requesting registration at the time of
their request for registration under Section 1.2, in which event such
registration shall not be treated as a counted registration for purposes of
Section 1.2 hereof even though the Holders do not bear the Registration Expenses
for such registration. All Selling Expenses relating to securities so registered
shall be borne by the holders of such securities pro rata on the basis of the
number of shares of securities so registered on their behalf.
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<PAGE> 86
1.5 Registration on Form S-3.
(a) After the Initial Offering, the Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms. After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Section 1,
the Holders of Registrable Securities shall have the right to request
registrations on Form S-3 (such requests shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
methods of disposition of such shares by such Holder or Holders), provided,
however, that the Company shall not be obligated to effect any such registration
if (i) the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) on Form S-3 at an aggregate price
to the public of less than $500,000, or (ii) in the event that the Company shall
furnish the certification described in paragraph 1.2(a)(ii) (but subject to the
limitations set forth therein) or (iii) in a given twelve-month period, after
the Company has effected one (1) such registration in any such period.
(b) If a request complying with the requirements of Section 1.5(a)
hereof is delivered to the Company, the provisions of Sections 1.2(a)(i) and
(ii) and Section 1.2(b) hereof shall apply to such registration. If the
registration is for an underwritten offering, the provisions of Sections 1.2(c)
and 1.2(d) hereof shall apply to such registration.
1.6 Registration Procedures. In the case of each registration effected
by the Company pursuant to Section 1, the Company will keep each Holder advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day period shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement;
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<PAGE> 87
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any preliminary prospectus or amendment of or
supplement to the prospectus, as a Holder from time to time may reasonably
request;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act on the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) Use all reasonable efforts to register and qualify the
securities covered by the registration statement under such other securities or
Blue Sky laws of such jurisdiction as shall be reasonably requested by the
Holders; provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such state or jurisdiction;
(f) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration;
(h) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve (12) months, but not more than eighteen (18) months, beginning with
the first month after the effective date of the Registration Statement, which
earnings statement shall satisfy the provisions of Section II(a) of the
Securities Act;
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<PAGE> 88
(i) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.2 hereof, the Company will
enter into an underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions; and
(j) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that such registration statement with respect to such
securities becomes effective, (A) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (B) a letter dated
as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
1.7 Indemnification.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this Section 1 and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages and liabilities (or
actions, proceedings or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel and accountants and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such
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<PAGE> 89
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder or underwriter and stated to
be specifically for use therein. It is agreed that the indemnity agreement
contained in this Section 1.7(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent has not been
unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by him are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder and Other Shareholder
and each of their officers, directors and partners, and each person controlling
such Holder or Other Shareholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Holders, Other Shareholders,
directors, officers, partners, legal counsel and accountants, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated specifically for use therein,
provided, however, that the obligations of such Holder hereunder shall not apply
to amounts paid in settlement of any such claims, losses, damages or liabilities
(or actions in respect thereof) if such settlement is effected without the
consent of such Holder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section 1.7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
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consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
1.8 Information by Holder. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.9 Limitations on Registration of Issues of Securities. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of a majority in interest of the Holders, enter into any agreement with
any holder or prospective holder of any securities of the Company giving such
holder or prospective holder any registration rights the terms of which are more
favorable than the registration rights granted to the Holders hereunder.
1.10 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC which may permit the sale of the
Registrable Securities to the public without registration, the Company agrees to
use its best efforts to:
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(a) Make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(c) So long as a Holder owns any Registrable Securities, furnish
to the Holder forthwith upon written request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time
from and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as a Holder may reasonably request in availing itself of any
rule or regulation of the SEC allowing a Holder to sell any such securities
without registration.
1.11 Transfer or Assignment of Registration Rights. The rights to cause
the Company to register securities granted to a Holder by the Company under
Sections 1.2, 1.3 and 1.5 may be transferred or assigned by a Holder only to a
transferee or assignee of not less than 25,000 shares of Registrable Securities
(as presently constituted and subject to subsequent adjustments for stock
splits, stock dividends, reverse stock splits and the like), and only provided
that the Company is given written notice at the time of or within a reasonable
time after said transfer or assignment, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and provided further that
the transferee or assignee of such rights assumes the obligations of such Holder
under this Article 1.
1.12 Restrictions on Transfer.
(a) Each Holder agrees not to transfer or dispose of all or any
portion of the Registrable Securities unless and until the proposed transferee
has agreed in writing for the benefit of the Company to be bound by this Section
1.12, provided and to the extent this Section 1.12 is then applicable and:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (B) if
requested by the Company,
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such Holder shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, to the effect that such disposition will
not require registration of such shares under the Securities Act.
Notwithstanding the provisions of subsections (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
(A) by a Holder which is a partnership to its partners or retired partners in
accordance with partnership interests, (B) to a Holder's family member or trust
for the benefit of an individual Holder, provided that the transferee will be
subject to the terms of this Section 1.12 to the same extent as if he were an
original Holder hereunder, or (C) pursuant to Rule 144(k); provided, however,
that the Company must be satisfied in its reasonable discretion that the
proposed sale of securities fully qualifies with all Rule 144 requirements.
(b) Each certificate representing Registrable Securities shall
(unless otherwise permitted by the provisions of this Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION
OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
1.13 "Market Stand-Off" Agreement. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, an Investor
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Investor (other than those included in
the registration) during the one hundred eighty (180) day period following the
effective date of a registration statement of the Company filed under the
Securities Act, provided that all Holders and officers and directors of the
Company enter into similar agreements.
The obligations described in this Section 1.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms which may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4, Form S-14 or Form S-15 or
similar forms which may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of said one hundred eighty (180) day
period.
1.14 Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities and other shares of Common Stock of the
Company
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(including shares of Common Stock issued or issuable upon conversion of shares
of any currently unissued series of Preferred Stock of the Company) with
registration rights (the "Other Shares") requested to be included in a
registration on behalf of the Holders or other selling shareholders cannot be so
included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares which may be so included, the number of
shares of Registrable Securities and Other Shares which may be so included shall
be allocated among the Holders and other selling shareholders requesting
inclusion of shares pro rata on the basis of the number of shares of Registrable
Securities and Other Shares that would be held by such Holders and other selling
shareholders, assuming conversion; provided, however, that, so that such
allocation shall not operate to reduce the aggregate number of Registrable
Securities and Other Shares to be included in such registration, if any Holder
or other selling shareholder does not request inclusion of the maximum number of
shares of Registrable Securities and Other Shares allocated to him pursuant to
the above-described procedure, the remaining portion of his allocation shall be
reallocated among those requesting Holders and other selling shareholders whose
allocations did not satisfy their requests pro rata on the basis of the number
of shares of Registrable Securities and Other Shares that would be held by such
Holders and other selling shareholders, assuming conversion, and this procedure
shall be repeated until all of the shares of Registrable Securities and Other
Shares that may be included in the registration on behalf of the Holders and
other selling shareholders have been so allocated. The Company shall not limit
the number of Registrable Securities to be included in a registration pursuant
to this Agreement in order to include shares held by shareholders with no
registration rights or to include Founder's Stock or any other shares of stock
issued to employees, officers, directors or consultants pursuant to the
Company's stock option plan, or with respect to registrations under Sections 1.2
or 1.5 hereof, in order to include in such registration securities registered
for the Company's own account or included at the request of the Company pursuant
to Section 1.3 hereof without the prior written consent of seventy percent (70%)
of the Holders; provided, further, that in no event will the amount of
securities of the selling Holders included in a registration pursuant to Section
1.3 hereof be reduced below twenty percent (20%) of the total amount of
securities included in such offering, unless such offering is the Initial
Offering of the Company's securities in which case the selling shareholders may
be excluded entirely if the underwriters make the determination described above
and no other shareholder's securities are included. For purposes of determining
allocation hereunder, (a) for any selling shareholder which is a Holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners and shareholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons will be deemed to be a single "selling
shareholder," and (b) all of the JAFCO Funds together shall be deemed to be a
"selling shareholder." Any pro-rata reduction with respect to any such "selling
shareholder" will be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder."
1.15 Delay of Registration. No Holder shall have any right to take any,
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
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1.16 Termination of Registration Rights. The right of any Holder to
request registration or inclusion in any registration pursuant to Sections 1.2,
1.3 or 1.5 shall terminate on the closing of the first Company-initiated
registered public offering of Common Stock of the Company, provided that all
shares of Registrable Securities held or entitled to be held upon conversion by
such Holder may immediately be sold under Rule 144 during any 90-day period, or
on such date after the closing of the first Company-initiated registered public
offering of Common Stock of the Company as all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period.
SECTION 2
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees, so long as any Holder owns any
Registrable Shares as follows:
2.1 Basic Financial Information. The Company will furnish the following
reports to each Holder:
(a) As soon as practicable after the end of each fiscal year of
the Company, and in any event within ninety (90) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as at the end of such
fiscal year, and consolidated statements of income and sources and applications
of funds of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company.
(b) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company, and in
any event within forty-five (45) days thereafter, a consolidated balance sheet
of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of income and sources and
applications of funds of the Company and its subsidiaries for such period and
for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in
comparative form the figures for the corresponding periods of the previous
fiscal year and to the Company's operating plan then in effect and approved by
its Board of Directors, subject to changes resulting from normal year-end audit
adjustments, all in reasonable detail and certified by the principal financial
or accounting officer of the Company, except that such balance sheet need not
contain the notes required by generally accepted accounting principles.
2.2 Additional Information and Rights.
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(a) The Company will permit any Investor, so long as such Investor
or its representative (treating all the JAFCO Funds as a single Investor) owns
at least 500,000 Shares, or such number of shares of Common Stock issued upon
conversion of 500,000 or more Shares, or any combination thereof (as presently
constituted and subject to subsequent adjustment for stock splits, stock
dividends, reverse stock splits, recapitalizations and the like) (a "Significant
Holder") (or a representative of any Significant Holder) to visit and inspect
any of the properties of the Company, including its books of account and other
records (and make copies thereof and take extracts therefrom), and to discuss
its affairs, finances and accounts with the Company's officers and its
independent public accountants, all at such reasonable times and as often as any
such person may reasonably request.
(b) Until the earlier to occur of (i) the date on which the
Company is subject to the reporting requirements of Sections 13(a) or 15(d) of
the Exchange Act, or (ii) the date on which quotations for the Common Stock of
the Company are reported by the automated quotations systems operated by the
National Association of Securities Dealers, Inc., or by an equivalent quotations
system, the Company will deliver the reports described below in this Section 2.2
to each Significant Holder:
(i) As soon as practical after the end of each month and in
any event within thirty (30) days thereafter a consolidated balance sheet of the
Company and its subsidiaries, if any, as at the end of such month and
consolidated statements of income and of sources and applications of funds of
the Company and its subsidiaries, for each month and for the current fiscal year
of the Company to date, all subject to normal year-end audit adjustments,
prepared in accordance with generally accepted accounting principles
consistently applied and certified by the principal financial or accounting
officer of the Company, together with a comparison of such statements to the
corresponding periods of the prior fiscal year and to the Company's operating
plan then in effect and approved by its Board of Directors.
(c) The provisions of Section 2.1 and this Section 2.2 shall not
be in limitation of any rights which any Holder or Significant Holder may have
with respect to the books and records of the Company and its subsidiaries, or to
inspect their properties or discuss their affairs, finances and accounts, under
the laws of the jurisdictions in which they are incorporated.
(d) Anything in Section 2 to the contrary notwithstanding, no
Holder or Significant Holder by reason of this Agreement shall have access to
any trade secrets or classified information of the Company. Each Significant
Holder hereby agrees to hold in confidence and trust and not to misuse or
disclose any confidential information provided pursuant to this Section 2.2.
(e) Each Holder who represents to the Company that it is a
"venture capital operating company" for purposes of Department of Labor
Regulation ss.2510.3-101 shall in addition have the right to consult with and
advise the officers of the Company as to the management of the Company.
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2.3 Right of First Refusal. The Company hereby grants to each Holder and
its affiliates who own any shares of Series A, Series B, Series C, Series D,
Series A-1, Series B-1, Series C-1 or Series D-1 Preferred Stock (the "Cash
Preferred") or any shares of Common Stock issued upon conversion of the Cash
Preferred (the "Rights Holder") the right of first refusal to purchase a Pro
Rata Share (as defined in this Section 2.3) of New Securities (as defined in
this Section 2.3) which the Company may, from time to time, propose to sell and
issue. A Rights Holder's Pro Rata Share, for purposes of this right of first
refusal, is the ratio of the number of shares of Common Stock owned by such
Rights Holder immediately prior to the issuance of New Securities, assuming full
conversion of the Shares, to the total number of shares of Common Stock
outstanding immediately prior to the issuance of New Securities, assuming full
conversion of the Shares and exercise of all outstanding rights, options and
warrants to acquire Common Stock of the Company. For purposes of this Section
2.3, each of the JAFCO Funds shall be deemed to have purchased its Pro Rata
Share if one or more of the JAFCO Funds shall have purchased an amount of New
Securities equal to the Pro Rata Share of the JAFCO Funds in the aggregate. Each
Rights Holder shall have a right of over-allotment such that if any Rights
Holder fails to exercise its right hereunder to purchase its pro rata share of
New Securities, the other Rights Holders may purchase the non-purchasing Rights
Holder's portion on a pro rata basis within ten (10) days from the date such
non-purchasing Rights Holder fails to exercise its right hereunder to purchase
its Pro Rata Share of New Securities. This right of first refusal shall be
subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including
Common Stock and/or Preferred Stock) of the Company whether now authorized or
not, and rights, options or warrants to purchase such capital stock, and
securities of any type whatsoever that are, or may become, convertible into
capital stock; provided that the term "New Securities" does not include (i)
securities purchased under the Series D Agreement; (ii) securities issued upon
conversion of the Shares; (iii) securities issued pursuant to the acquisition of
another business entity or business segment of any such entity by the Company by
merger, purchase of substantially all the assets or other reorganization whereby
the Company will own not less than fifty-one percent (51%) of the voting power
of such business entity or business segment of any such entity; (iv) any
borrowings, direct or indirect, from financial institutions or other persons by
the Company, whether or not presently authorized, including any type of loan or
payment evidenced by any type of debt instrument, provided such borrowings do
not have any equity features including warrants, options or other rights to
purchase capital stock and are not convertible into capital stock of the
Company; (v) securities issued to employees, consultants, officers or directors
of the Company pursuant to any stock option, stock purchase or stock bonus plan,
agreement or arrangement approved by the Board of Directors; (vi) securities
issued to vendors or customers or to other persons in similar commercial
situations with the Company if such issuance is approved by the Board of
Directors; (vii) securities issued in connection with obtaining lease financing,
whether issued to a lessor, guarantor or other person; (viii) securities issued
in a firm commitment underwritten public offering pursuant to a registration
under the Securities Act with an aggregate offering price to the public in
excess of $5.0 million; (ix) securities issued in
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connection with any stock split, stock dividend or recapitalization of the
Company; and (x) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of New Securities
pursuant to subsections (i) through (ix) above.
(b) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Rights Holder written notice of its
intention, describing the type of New Securities, and their price and the
general terms upon which the Company proposes to issue the same. Each Rights
Holder shall have twenty (20) days after any such notice is effective to agree
to purchase such Rights Holder's Pro Rata Share of such New Securities for the
price and upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
(c) In the event the Rights Holders fail to exercise fully the
right of first refusal within said twenty (20)-day period and after the
expiration of the ten (10)-day period for the exercise of the over-allotment
provisions of this Section 2.3, the Company shall have one hundred twenty (120)
days thereafter to sell or enter into an agreement (pursuant to which the sale
of New Securities covered thereby shall be closed, if at all, within one hundred
twenty (120) days from the date of said agreement) to sell the New Securities
respecting which the Rights Holders' right of first refusal option set forth in
this Section 2.3 was not exercised, at a price and upon terms no more favorable
to the purchasers thereof than specified in the Company's notice to Rights
Holders pursuant to Section 2.3(b). In the event the Company has not sold within
said one hundred twenty (120)-day period or entered into an agreement to sell
the New Securities within said one hundred twenty (120)-day period (or sold and
issued New Securities in accordance with the foregoing within one hundred twenty
(120) days from the date of said agreement), the Company shall not thereafter
issue or sell any New Securities, without first again offering such securities
to the Rights Holders in the manner provided in Section 2.3(b) above.
(d) At any time following the date of this Agreement, if the
Company has complied with its notice obligations pursuant to this Section 2.3,
or such obligations have been waived, and the Company thereafter proceeds to
issue or sell New Securities and a Rights Holder does not acquire his, her or
its Pro Rata Share (a "NonParticipating Rights Holder"), then all of such
Non-Participating Rights Holder's Cash Preferred shall automatically and without
further action on the part of such holder be converted, in accordance with the
provisions of Article III(B)(4)(m) of the Company's Amended and Restated
Articles of Incorporation.
(e) The right of first refusal granted under this Agreement shall
expire upon, and shall not be applicable to, the first sale of Common Stock of
the Company to the public effected pursuant to a registration statement filed
with, and declared effective by, the SEC under the Securities Act, with proceeds
of more than $5,000,000.
(f) The right of first refusal set forth in this Section 2.3 may
not be assigned or transferred, except that (i) such right is assignable by each
Rights Holder to any
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wholly owned subsidiary or parent of, or to any corporation or entity that is,
within the meaning of the Securities Act, controlling, controlled by or under
common control with, any such Rights Holder, and (ii) such right is assignable
between and among any of the Rights Holders.
2.4 Key Person Life Insurance. The Company has as of the date hereof
obtained from financially sound and reputable insurers term life insurance on
the life of Steve Teig in the amount of [$2,000,000] (the "Teig Insurance"), and
shall maintain with financially sound and reputable insurers the Teig Insurance
except as otherwise decided in accordance with policies adopted by the Company's
Board of Directors. Such policy shall name the Company as loss payee and shall
not be cancelable by the Company without prior approval of the Board of
Directors.
2.5 Representation on Board of Directors. So long as any Shares remain
outstanding, the Company will use its best efforts to cause and maintain the
election to the Board of Directors of (a) two people designated by the holders
of a majority of the Series C Preferred Stock outstanding, including Common
Stock issued upon conversion of such Series C Preferred Stock (each a "Series C
Director"), and (b) two people designated by the holders of a majority of the
Series A and Series B Preferred Stock outstanding, including Common Stock issued
upon conversion of such Series A and B Preferred Stock. One Series C Director
shall be designated by The Sprout Group and the other Series C Director shall be
designated, subject to the consent of The Sprout Group, by a holder of at least
2,419,355 shares of Series C Preferred Stock in the aggregate. In the event that
two or more holders of Series C Preferred Stock, other than The Sprout Group,
each hold in excess of 2,419,355 shares of Series C Preferred Stock, then that
holder holding the greatest number of shares of Series C Preferred Stock shall
have the right to designate the remaining Series C Director. In the event that
two or more such holders hold an equal number of Series C Preferred Stock, then
The Sprout Group shall determine which of them shall designate the remaining
Series C Director. For the purposes of this paragraph, a "holder" shall include
the affiliates of any holder.
2.6 Termination of Covenants. The covenants set forth in this Section 2
shall terminate and be of no further force and effect after the time of
effectiveness of the Company's first firm commitment underwritten public
offering registered under the Securities Act.
SECTION 3
MISCELLANEOUS
3.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California, as if entered into by and between
California residents exclusively for performance entirely within California.
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3.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
3.3 Entire Agreement; Amendment; Waiver. This Agreement (including the
Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated,
except by a written instrument signed by the Company and the holders of at least
fifty percent (50%) of the Registrable Shares and any such amendment, waiver,
discharge or termination shall be binding on all the Holders, but in no event
shall the obligation of any Holder hereunder be materially increased, except
upon the written consent of such Holder.
3.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, or delivered personally addressed by hand or
special courier (a) if to a Holder, as indicated on the list of Holders attached
hereto as Exhibit A, or at such other address as such Investor or permitted
assignee shall have furnished to the Company in writing, or (b) if to the
Company, at 9050 Camino Santa Fe, San Diego, California 92121, or at such other
address as the Company shall have furnished to each holder in writing. All such
notices and other written communications shall be effective (i) if mailed, five
(5) days after mailing and (ii) if delivered, upon delivery.
3.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement or any
waiver on the part of any Holder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any Holder, shall be cumulative and
not alternative.
3.6 Rights; Separability. Unless otherwise expressly provided herein, a
Holder's rights hereunder are several rights, not rights jointly held with any
of the other Holders. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
3.7 Information Confidential. Each Holder acknowledges that the
information received by them pursuant hereto may be confidential and for its use
only, and it
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will not use such confidential information in violation of the Exchange Act or
reproduce, disclose or disseminate such information to any other person (other
than its employees or agents having a need to know the contents of such
information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or such Holder is required to disclose such
information by a governmental body.
3.8 Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
3.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Investors Rights
Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:______________________________________
Title:___________________________________
HOLDER:
-----------------------------------------
[Name of Holder]
By:______________________________________
Title:___________________________________
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 102
EXHIBIT A
INVESTORS
Forward Ventures II, L.P.
Sequoia Capital VI
Sequoia Technology Partners VI
Sequoia XXIV
Sequoia 1995
Lynn H. Caporale
Sydney Brenner
Sprout Capital VII, L.P.
DLJ Capital Corporation
C. V. Sofinnova Ventures Partners III
Singapore Bio-Innovations Pte, Ltd
PaineWebber Incorporated as Custodian of the Michael Grossman Rollover IRA
Steven M. Lash
First Interstate Bank as Trustee for SK International Securities
Corp. 401(k)PS em Stephen J. Kandel
Byron T. Franzen
IRA FBO Byron T. Franzen
The M.L. Lawrence Trust
Farley Inc.
Sorrento Ventures II, L.P.
Sorrento Growth Partners I, L.P.
Comdisco, Inc.
Brinson Venture Capital Fund III, L.P. (The First National Bank of Chicago as
Custodian to the Brinson Venture Capital Fund III, L.P.)
Brinson Trust Company as Trustee of the Brinson MAP Venture Capital Fund III
(The First National Bank of Chicago as Custodian to the Brinson Trust Company
as Trustee of the Brinson MAP Venture Capital Fund III)
Japan Associated Finance Co., Ltd.
JAFCO G-5 Investment Enterprise Partnership
JAFCO R-1(A) Investment Enterprise Partnership
JAFCO R-1(B) Investment Enterprise Partnership
JAFCO R-2 Investment Enterprise Partnership
Brentwood Associates VII, L.P.
S.R. One Limited
Stephen J. Kandel
Todd Schmidt
Vicente Anido
John T. Chambers
The Rufus L. McCracken Trust, dated 6/21/91
Steve Teig
Faye Hunter Russell Trust U/A Dtd 7/11/88
Exhibit A
<PAGE> 103
EXHIBIT C
Current Shareholders
<PAGE> 104
EXHIBIT C
The outstanding shares of Preferred Stock and Common Stock are owned by
the shareholders and in the numbers specified herein:
<TABLE>
<CAPTION>
CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------- ----------
<S> <C> <C>
Common Kim D. Janda 175,000
Common Chi-Huey Wong 150,000
Common Dale L. Boger 150,000
Common Eric Erb 10,000
Common Standish Fleming 37,500
Common Trustees of Royston Family Trust UTA 37,500
2/12/82
Common Sydney Brenner 150,000
Common Forward Ventures II, L.P. 225,000
Common Jeffrey Sollender 10,000
Common Robert A. Curtis 229,160
Common Gail Erwin 2,500
Common Sequoia Capital VI 91,000
Common Sequoia Technology Partners VI 5,000
Common Sequoia XXIV 4,000
Common Lynn H. Caporale 175,000
Common Bobbie J. Bosley 10,000
Common Eric Erb 5,000
Common Angelo Castillino, Ph.D. 20,000
Common Peter A. Bick 20,000
Common Soan Cheng 20,000
Common Daniel C. M. Sun 10,000
Common Gail Erwin 11,667
Common Christine M. Tarby 14,000
Common Peter M. Wirsching, Ph.D. 11,764
Common Richard A. Lerner, M.D. 83,000
Common The Scripps Research Institute 305,236
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------- ----------
<S> <C> <C>
Common Peter Myers 350,000
Common Jonathan Greene 100,000
Common Steven Teig 200,000
Common Ken Rubenstein 6,000
Common Vicente Anido 96,000
TOTAL COMMON: 2,714,327
Series A Forward Ventures II, L.P. 600,000
Series A Sequoia Capital VI 364,000
Series A Sequoia Technology Partners VI 20,000
Series A Sequoia XXIV 16,000
TOTAL SERIES A: 1,000,000
Series B Sequoia Capital VI 1,213,334
Series B Sequoia Technology VI 66,667
Series B Sequoia Capital VI 53,333
Series B Forward Ventures II, L.P. 866,666
Series B Lynn H. Caporale 26,667
TOTAL SERIES B: 2,226,667
Series C Sprout Capitol VII, L.P. 3,126,821
Series C DLJ Capital Corporation 260,276
Series C Sofinnova Ventures III, L.P. 1,129,033
Series C Singapore Bio-Innovation Ptd., Ltd. 564,517
Series C Sequoia Capital VI 1,335,646
Series C Sequoia Technology Partners VI 73,388
Series C Sequoia XXIV 58,710
Series C PainWebber Incorporated as Custodian of 37,218
the Michael Grossman Rollover IRA
Series C Steven M. Lash 16,185
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------- ----------
<S> <C> <C>
Series C First Interstate Bank as Trustee for SK 80,874
International Securities Corp. 401(k) PS em
Stephen J. Kendel
Series C Byron T. Franzen 56,452
Series C M.L. Lawrence Revocable Trust 225,807
Series C Farley Inc. 846,775
Series C Sorrento Ventures II, L.P. 564,517
Series C Sorrento Growth Partners I, L.P. 1,129,033
Series C Comdisco, Inc. 169,355
Series C Brinson Venture Capital Fund III, L.P. 1,941,441
Series C Brinson Trust Company as Trustee of the 316,624
Brinson MAP Venture Capital Fund III
Series C Todd Schmidt 8,065
Series C Spout Capital VII, L.P. 1,340,066
Series C DLJ Capital Corporation 111,547
Series C CV Sofinnova Ventures Partners III 483,871
Series C Singapore Bio-Innovations Pte Ltd 241,936
Series C Sequoia Capital VI 572,420
Series C Sequoia Technology Partners VI 31,452
Series C Sequoia 1995 25,162
Series C Byron T. Franzen 24,194
Series C M.L. Lawrence Trust 96,775
Series C Farley Inc. 362,904
Series C Sorrento Ventures II, L.P. 241,936
Series C Sorrento Growth Partners I, L.P. 483,871
Series C Comdisco, Inc. 72,581
Series C The First National Bank of Chicago as 832,046
Custodian to the Brinson Venture Capital
Fund III, L.P.
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------- ----------
<S> <C> <C>
Series C The First National Bank of Chicago as 135,696
Custodian to the Brinson Trust Company as
Trustee of the Brinson Map Venture Capital
Fund III
Series C Donaldson, Lufkin & Jenrette Securities 112,904
Corporation Custodian F/B/O Byron T.
Franzen, Account # 4GH 017650
Series C Donaldson, Lufkin & Jenrette Securities 48,388
Corporation Custodian F/B/O Byron T.
Franzen, Account # 4GH 017650
TOTAL SERIES C: 17,158,486
Series Z Sydney Brenner 200,000
Series Z Molecular Simulations, Inc. 106,971
Series Z Molecular Simulations, Inc. 225,806
TOTAL SERIES Z: 532,777
</TABLE>
<PAGE> 108
EXHIBIT D
Co-Sale Agreement
<PAGE> 109
COMBICHEM, INC.
AMENDED AND RESTATED
CO-SALE AGREEMENT
This Amended and Restated Co-Sale Agreement (the "Agreement") is made as
of the 15th day of November, 1996, by and among Vicente Anido, Robert A. Curtis,
Peter Myers, Steven Teig, Sydney Brenner, Kim Janda, Chi-Huey Wong and Dale
Boger (individually, a "Founder" and, collectively, the "Founders"), CombiChem,
Inc., a California corporation (the "Company"), and the undersigned holders of
Series A, B, C or D Preferred Stock of the Company (the "Shareholders").
WHEREAS, the Founders are subject to certain obligations and certain of
the Shareholders have certain rights pursuant to that certain Co-Sale Agreement
dated August 17, 1995 (the "Prior Agreement");
WHEREAS, the Prior Agreement may be amended or modified by the written
consent of the Company, of Shareholders (as defined under the Prior Agreement)
holding more than 50% in interest of the Common Stock then held and of each
Founder;
WHEREAS, the Company, the Shareholders (as defined under the Prior
Agreement) and each Founder executing this Agreement desire to amend and restate
the Prior Agreement and to accept the rights and obligations created hereunder
in lieu of the rights and obligations granted to them under the Prior Agreement;
and
WHEREAS, certain Shareholders are parties to the Series D Preferred Stock
Purchase Agreement dated the date hereof, certain of the Shareholders'
obligations under which are conditioned upon the execution and delivery by such
Shareholder and the Company of this Agreement.
In consideration of the mutual covenants set forth herein, the parties
agree as follows:
1. Definitions.
(a) "Stock" shall mean shares of the Company's Common Stock or
Preferred Stock or Series Z Preferred Stock now owned or subsequently acquired
by the Founders.
(b) "Preferred Stock" shall mean the Company's outstanding Series
A, Series B, Series C, Series D, Series J, Series Z, Series A-1, Series B-1,
Series C-1 and Series D-1 Preferred Stock.
(c) "Common Stock" shall mean the Company's Common Stock and
shares of Common Stock issued or issuable upon conversion of the Company's
outstanding Preferred Stock.
-1-
<PAGE> 110
(d) "JAFCO Funds" shall mean Japan Associated Finance Co., Ltd.
("JAFCO") and certain Investment Enterprise Partnerships affiliated with JAFCO
which are holders of Series D Preferred Stock or Series D-1 Preferred Stock.
2. Sales by Founder.
(a) If a Founder proposes to sell or transfer any shares of Stock
in one or more related transactions which will result in (i) the transfer of
1,000 or more shares of Stock by such Founder or (ii) the transferee of such
shares holding more than 50% of the Common Stock, then such Founder shall
promptly give written notice (the "Notice") to the Company and the Shareholders
at least twenty (20) days prior to the closing of such sale or transfer. The
Notice shall describe in reasonable detail the proposed sale or transfer
including, without limitation, the number of shares of Stock to be sold or
transferred, the nature of such sale or transfer, the consideration to be paid
and the name and address of each prospective purchaser or transferee. In the
event that the sale or transfer is being made pursuant to the provisions of
Sections 3(a) or 3(b) hereof, the Notice shall state under which paragraph the
sale or transfer is being made.
(b) Each Shareholder shall have the right, exercisable upon
written notice to such Founder within 15 days after receipt of the Notice, to
participate in such sale of Stock on the same terms and conditions. To the
extent one or more of the Shareholders exercise such right of participation in
accordance with the terms and conditions set forth below, the number of shares
of Stock that the Founder may sell in the transaction shall be correspondingly
reduced.
(c) Each Shareholder may sell all or any part of that number of
shares of Stock equal to the product obtained by multiplying (i) the aggregate
number of shares of Stock covered by the Notice by (ii) a fraction the numerator
of which is the number of shares of Common Stock owned by the Shareholders at
the time of the sale or transfer and the denominator of which is the total
number of shares of Common Stock owned by the Founder and the Shareholders at
the time of the sale or transfer.
(d) If any Shareholder fails to elect to fully participate in such
Founder's sale pursuant to this Section 2, the Founder shall give notice of such
failure to the Shareholders who did so elect (the "Participants"); provided,
however, that the JAFCO Funds shall be collectively deemed to be a single
participant. Such notice may be made by telephone if confirmed in writing within
two (2) days. The Participants shall have five (5) days from the date such
notice was given to agree to sell their pro rata share of the unsold portion.
For purposes of this Section 2(d), a Participant's pro rata share shall be the
ratio of (x) the number of shares of Common Stock held by such Participant to
(y) the total number of shares of Common Stock held by the Participants and the
Founder.
(e) Each Participant shall effect its participation in the sale by
promptly delivering to the Founder for transfer to the prospective purchaser one
or more certificates, properly endorsed for transfer, which represent:
-2-
<PAGE> 111
(i) the type and number of shares of Common Stock which such
Participant elects to sell; or
(ii) that number of shares of Preferred Stock which is at
such time convertible into the number of shares of Common Stock which such
Participant elects to sell; provided, however, that if the prospective purchaser
objects to the delivery of Preferred Stock in lieu of Common Stock, such
Participant shall convert such Preferred Stock into Common Stock and deliver
Common Stock as provided in Section 2(e)(i) above. The Company agrees to make
any such conversion concurrent with the actual transfer of such shares to the
purchaser.
(f) The stock certificate or certificates that the Participant
delivers to the Founder pursuant to Section 2(e) shall be transferred to the
prospective purchaser in consummation of the sale of the Stock pursuant to the
terms and conditions specified in the Notice, and the Founder shall concurrently
therewith remit to such Participant that portion of the sale proceeds to which
such Participant is entitled by reason of its participation in such sale. To the
extent that any prospective purchaser or purchasers prohibits such assignment or
otherwise refuses to purchase shares or other securities from a Participant
exercising its rights of co-sale hereunder, the Founder shall not sell to such
prospective purchaser or purchasers any Stock unless and until, simultaneously
with such sale, the Founder shall purchase such shares or other securities from
such Participant.
(g) The exercise or non-exercise of the rights of the Participants
hereunder to participate in one or more sales of Stock made by the Founder shall
not adversely affect their rights to participate in subsequent sales of Stock
subject to Section 2(a).
3. Exempt Transfers.
(a) Notwithstanding the foregoing, the co-sale rights of the
Shareholders shall not apply to (i) any pledge of Stock made pursuant to a bona
fide loan transaction that creates a mere security interest or (ii) any transfer
to the ancestors, descendants or spouse or to trusts for the benefit of such
persons or a Founder; provided that (A) the transferring Founder shall inform
the Shareholders of such pledge or transfer prior to effecting it and (B) the
pledgee or transferee shall furnish the Shareholders with a written agreement to
be bound by and comply with all provisions of this Agreement. Such transferred
Stock shall remain "Stock" hereunder, and such pledgee or transferee shall be
treated as a "Founder" for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 2
shall not apply to the sale of any Stock (i) to the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act") or (ii) to the Company.
4. Prohibited Transfers.
(a) In the event a Founder should sell any Stock in contravention
of the co-sale rights of the Shareholders under this agreement (a "Prohibited
Transfer"), the
-3-
<PAGE> 112
Shareholders, in addition to such other remedies as may be available at law, in
equity or hereunder, shall have the put option provided below, and the Founder
shall be bound by the applicable provisions of such option.
(b) In the event of a Prohibited Transfer, each Shareholder shall
have the right to sell to the Founder the type and number of shares of Stock
equal to the number of shares each Shareholder would have been entitled to
transfer to the purchaser under Section 2(c) hereof had the Prohibited Transfer
been effected pursuant to and in compliance with the terms thereof. Such sale
shall be made on the following terms and conditions:
(i) The price per share at which the shares are to be sold
to the Founder shall be equal to the price per share paid by the purchaser to
the Founder in the Prohibited Transfer. The Founder shall also reimburse each
Shareholder for any and all reasonable fees and expense, including reasonable
legal fees and expense, incurred pursuant to the exercise or the attempted
exercise of the Shareholder's rights under Section 2.
(ii) Within ninety (90) days after the later of the dates on
which the Shareholder (A) received notice of the Prohibited Transfer or (B)
otherwise became aware of the Prohibited Transfer, each Shareholder shall, if
exercising the option created hereby, deliver to the Founder the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) The Founder shall, upon receipt of the certificate or
certificates for the shares to be sold by a Shareholder, pursuant to this
Section 4(b), pay the aggregate purchase price therefor and the amount of
reimbursable fees and expense, as specified in Section 4(b)(i), in cash or by
other means acceptable to the Shareholder.
(iv) Notwithstanding the foregoing, any attempt by a Founder
to transfer Stock in violation of Section 2 hereof shall be void and the Company
agrees it will not effect such a transfer nor will it treat any alleged
transferee as the holder of such shares without the written consent of a
majority in interest of the Shareholders.
5. Legend.
(a) Each certificate representing shares of Stock now or hereafter
owned by the Founders or issued to any person in connection with a transfer
pursuant to Section 3(a) hereof shall be endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
CO-SALE AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE CORPORATION AND
CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY
BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
-4-
<PAGE> 113
(b) Each Founder agrees that the Company may instruct its transfer
agent to impose transfer restrictions on the shares represented by certificates
bearing the legend referred to in Section 5(a) above to enforce the provisions
of this Agreement and the Company agrees to promptly do so. The legend shall be
removed upon termination of this Agreement.
6. Miscellaneous.
6.1 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Delaware.
6.2 Amendment. Any provision may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent of (i) as to the
Company, only by the Company, (ii) as to the Shareholders, by persons holding
more than fifty percent (50%) in interest of the Common Stock and Common Stock
equivalents then held by the Shareholders and their assignees, pursuant to
Section 6.3 hereof, and (iii) as to each Founder, such Founder, provided that
any Shareholder may individually waive any of his rights hereunder without
obtaining the consent of any other Shareholder. Any amendment or waiver effected
in accordance with clauses (i), (ii) and (iii) of this paragraph shall be
binding upon each Shareholder, its successors and assigns, the Company and the
Founder in question.
6.3 Assignment of Rights. This Agreement and the rights and
obligations of the parties hereunder shall inure to benefit of, and be binding
upon, their respective successors, assigns and legal representatives. The rights
of the Shareholders hereunder are only assignable (i) by each of such
Shareholders to any other Shareholder or (ii) to an assignee or transferee who
acquires all of the Common Stock purchased by a Shareholder or at least 25,000
shares of Common Stock.
6.4 Term. This Co-Sale Agreement shall terminate upon the earlier
of (i) the closing of a firm commitment underwritten public offering pursuant to
a registration statement on Form S-1 under the Securities Act of 1933, as
amended, the public offering price of which (exclusive of underwriting
discounts, commissions and expenses) is not less than $4.00 per share (adjusted
to reflect subsequent stock dividends, stock splits or recapitalizations) and
$12,000,000 in the aggregate, and (ii) the closing of the Company's sale of all
or substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company's capital stock for securities or
consideration issued, or caused to be issued, by the acquiring entity or its
subsidiary.
6.5 Ownership. Each Founder represents and warrants that he is the
sole legal and beneficial owner of the shares of Stock subject to this Co-Sale
Agreement and that no other person has any interest (other than a community
property interest) in such shares.
6.6 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given upon personal delivery to the
party to be
-5-
<PAGE> 114
notified or five days after deposit in the United States mail, by registered or
certified mail, postage prepaid and properly addressed to the party to be
notified as set forth on the signature page hereof or at such other address as
such party may designate by ten (10) days' advance written notice to the other
parties hereto. Notwithstanding the foregoing, the telephone notice permitted by
Section 2(d) shall be effective at the time it is given.
6.7 Severability. In the event one or more of the provisions of
this Co-Sale Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Co-Sale Agreement, and this
Co-Sale Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
6.8 Attorney Fees. In the event that any dispute among the parties
to this Co-Sale Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Co-Sale Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
6.9 Counterparts. This Co-Sale Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Remainder of This Page Intentionally Left Blank]
-6-
<PAGE> 115
The foregoing agreement is hereby executed as of the date first above
written.
COMBICHEM, INC.
By:______________________________________
Title:___________________________________
Address: 9050 Camino Santa Fe
San Diego, California 92121
SHAREHOLDERS:
-----------------------------------------
(Print Name of Investor)
-----------------------------------------
(Signature)
-----------------------------------------
(Title, if applicable)
Address: _________________________________________
_________________________________________
_________________________________________
FOUNDERS:
-----------------------------------------
(Print Name of Founder)
-----------------------------------------
(Signature)
Address: _________________________________________
_________________________________________
_________________________________________
[SIGNATURE PAGE TO CO-SALE AGREEMENT]
<PAGE> 116
CONSENT OF SPOUSE
I acknowledge that I have read the foregoing Agreement and that I know its
contents. I am aware that by its provisions if I and/or my spouse agree to sell
all or part of the shares of the Company held of record by either or both of us,
including my community interest in such shares, if any, co-sale rights (as
described in the Agreement) must be granted to the Shareholders by the seller. I
hereby agree that those shares and my interest in them, if any, are subject to
the provisions of the Agreement and that I will take no action at any time to
hinder operation of, or violate, the Agreement.
-----------------------------------------
(Signature)
<PAGE> 117
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Closing
---------------------------------------
Investor Number of Shares Cash
-------- ---------------- ----
<S> <C> <C>
Japan Associated Finance Co., Ltd. ........................... 400,000 $ 400,000.00
JAFCO G-5 Investment Enterprise Partnership .................. 677,300 $ 677,300.00
JAFCO R-1(A) Investment Enterprise Partnership ............... 316,450 $ 316,450.00
JAFCO R-1(B) Investment Enterprise Partnership ............... 316,450 $ 316,450.00
JAFCO R-2 Investment Enterprise Partnership .................. 289,800 $ 289,800.00
Brentwood Associates VII, L.P. ............................... 2,000,000 $2,000,000.00
S.R. One Limited ............................................. 1,000,000 $1,000,000.00
Sprout Capital VII, L.P. ..................................... 1,078,430 $1,078,430.00
DLJ Capital Corporation ...................................... 89,768 $ 89,768.00
C.V. Sofinnova Ventures Partners III ......................... 194,699 $ 194,699.00
Singapore Bio-Innovations PTE, Ltd. .......................... 194,700 $ 194,700.00
Sequoia Capital VI ........................................... 863,442 $ 863,442.00
Sequoia Technology Partners VI ............................... 47,442 $ 47,442.00
Sequoia 95 ................................................... 37,953 $ 37,953.00
PaineWebber, Inc. FBO "Michael Grossman," IRA R/O ............ 8,985 $ 8,985.00
Steven M. Lash ............................................... 3,908 $ 3,908.00
Stephen J. Kandel ............................................ 19,525 $ 19,525.00
Byron T. Franzen ............................................. 58,411 $ 58,411.00
The M.L. Lawrence Trust ...................................... 77,880 $ 77,880.00
Farley Inc. .................................................. 292,050 $ 292,050.00
Sorrento Ventures II, L.P. ................................... 192,753 $ 192,753.00
Sorrento Growth Partners I, L.P. ............................. 391,346 $ 391,346.00
Comdisco, Inc. ............................................... 58,410 $ 58,410.00
The First National Bank of Chicago as Custodian to the Brinson
Venture Capital Fund III, L.P. ............................... 515,868 $ 515,868.00
The First National Bank of Chicago as Custodian to the Brinson
Trust Company as Trustee of the Brinson MAP Venture Capital
Fund III ..................................................... 84,132 $ 84,132.00
Todd Schmidt ................................................. 8,065 $ 8,065.00
Vicente Anido ................................................ 240,000 $ 240,000.00
John T. Chambers (Anido designee) ............................ 240,000 $ 240,000.00
The Rufus L. McCracken Trust, dated 6/21/91 .................. 35,000 $ 35,000.00
</TABLE>
<PAGE> 118
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Closing
---------------------------------------
Investor Number of Shares Cash
-------- ---------------- ----
<S> <C> <C>
Steve Teig.................................................. 20,000 $ 20,000.00
Forward Ventures II, L.P.................................... 100,000 $ 100,000.00
Lynn Caporale............................................... 6,438 $ 6,438.00
Faye Hunter Russell Trust U/A Dtd 7/11/88................... 10,000 $ 10,000.00
--------- -------------
TOTALS:............................................. 9,869,205 $9,869,205.00
========= =============
</TABLE>
<PAGE> 119
SCHEDULE OF EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
This Schedule of Exceptions is made and given pursuant to Section 2 of the
Series D Preferred Stock Purchase Agreement dated November 15, 1996 (the
"Agreement") by and among CombiChem, Inc. ("CombiChem") and the investors listed
on Schedule A thereto. The section numbers in this Schedule of Exceptions
correspond to the section numbers in the Agreement; however, any information
disclosed herein under any section number shall be deemed to be disclosed and
incorporated into any other section number where such disclosure would otherwise
be appropriate. Any terms defined in the Agreement shall have the same meaning
when used in this Schedule of Exceptions as when used in the Agreement unless
the context otherwise requires.
Nothing herein constitutes an admission of any liability or obligation on
the part of CombiChem nor an admission against CombiChem's interest. The
inclusion of any schedule herein or any exhibit hereto should not be interpreted
as indicating that CombiChem has determined that such an agreement or other
matter is necessarily material to CombiChem. The Investors acknowledge that
certain information contained in these schedules may constitute material
confidential information relating to CombiChem which may not be used for any
purpose other than that contemplated in the Agreement.
<PAGE> 120
SCHEDULE 2.5
CAPITALIZATION AND VOTING RIGHTS
Vicente Anido has been granted a right to purchase a number of shares
sufficient to allow him to maintain a 6% ownership percentage in the Company
upon future financings.
A Consulting Group is to be paid $50,000 in shares of Capital Stock upon
its completion of work.
<PAGE> 121
SCHEDULE 2.7
CONTRACTS AND OTHER COMMITMENTS
The Company is a party to the following agreements:
(a) (i) Lease for 9050 Camino Santa Fe, San Diego, CA 92121
dated December 22, 1995.
(ii) Industrial Lease for 1221 Innsbruck Drive, Sunnyvale, CA
dated December 7, 1992.
(iii) Second Sublease for 1225 Innsbruck Drive, Sunnyvale, CA
and draft of Addendum No. 1.
(iv) Pursuant to a License Agreement dated August 4, 1995
between the Company and Molecular Simulations
Inc.("MSI"), the Company has agreed to pay to MSI
royalties equal to: (A) in connection with the sale of a
single product, the lesser of 5% of net sales of such
product or $25,000; (B) in connection with the sale of
more than one product in a single transaction, the sum
of (I) with respect to the first product included in
such transaction, the lesser of 5% of net sales of such
product or $25,000 and (II) with respect to the
additional products, a flat royalty of $5,000 per
additional product; or (C) in connection with a
collaboration or contract research project, the lesser
of 2% of net sales for such collaboration or contract
research project or $100,000. The maximum aggregate
royalties payable under the agreement is $5.0 million.
(v) Pursuant to the Sublicense Agreement dated July 20, 1995
between the Company and Johnson & Johnson (the "J&J
Sublicense"), the Company has paid $40,000 to Johnson &
Johnson and is required to make the following additional
payments: (A) aggregate payments of $60,000 (subject to
certain time and performance milestones) (B) an
additional royalty of 1% of monetary compensation
received in connection with a further sublicense of
rights under the Agreement and (C) earned royalties 10%
of net sales value of products sold under the agreement
by the Company or affiliates or 10% of the royalty or
other income received by the Company from sublicensee or
third parties in consideration of granting of further
sublicenses.
(vi) See (c)(i) below.
(vii) Pursuant to an agreement dated June 5, 1996 between the
Company and Cerep, the Company will pay Cerep $50,000 in
November or December 1996 in connection with a study of
2500 compounds.
(viii) Pursuant to an agreement dated August 27, 1996 between
the Company and DYAX CORP. ("Dyax"), the Company is
required to pay Dyax an aggregate of $250,000 in
increments of $50,000 at certain authorization or
deliver events in connection with developing a
separation and purification module.
(ix) Standard Office Lease for 470 San Antonio Road, Palo
Alto, CA 94306 dated October 29, 1996.
Schedule 2.7
<PAGE> 122
(b) (i) Preferred Stock Purchase Agreement (600,000 Shares of
Series A Preferred Stock) dated August 26, 1994 between
the Company and Forward Ventures II, L.P.
(ii) Common Stock Purchase Agreement (225,000 Shares of
Common Stock) dated September 28, 1994 between the
Company and Forward Ventures II, L.P.
(iii) Preferred Stock Purchase Agreement (200,000 Shares of
Series Z Preferred Stock) dated October 12, 1994 between
the Company and Dr. Sydney Brenner.
(iv) Stock Purchase Agreement Preferred and Common (400,000
Shares of Series A Preferred Stock and 100,000 Shares of
Common Stock) dated November 1, 1994 among the Company,
Sequoia Capital VI, Sequoia Technology Partners VI and
Sequoia XXIV.
(v) Stock Purchase Agreement (Series B Preferred) dated
November 29, 1994 among the Company, Sequoia Capital VI,
Sequoia Technology Partners VI, Sequoia XXIV and Forward
Ventures II, L.P.
(vi) Stock Purchase Agreement (Series B Preferred) dated
January 15, 1995 between the Company and Lynn H.
Caporale, Ph.D.
(vii) Common Stock Purchase Agreement dated March 20, 1995
between the Company and The Scripps Research Institute,
as amended through the date hereof.
(viii) The Company is party to the following Common Stock
Purchase Agreements:
<TABLE>
<CAPTION>
AMOUNT OF
NAME DATE SHARES
CURRENTLY
OUT-STANDING
UNDER AGMTS
- -----------------------------------------------------------------------------
<S> <C> <C>
Kim D. Janda 09/28/94 175,000
Chi Huey Wong 09/28/94 150,000
Dale L. Boger 09/28/94 150,000
Eric Erb 09/28/94 10,000
Standish Fleming 09/28/94 37,500
Trustee of Royston Family Trust UTA 09/28/94 37,500
2/12/82
Sydney Brenner 09/28/94 150,000
Jeffrey Sollender 09/28/94 10,000
Lynn H. Caporale 11/08/94 175,000
Bobbie J. Bosley 11/18/94 10,000
Eric D. Erb 01/01/95 5,000
</TABLE>
Schedule 2.7
<PAGE> 123
<TABLE>
<CAPTION>
AMOUNT OF
NAME DATE SHARES
CURRENTLY
OUT-STANDING
UNDER AGMTS
- -----------------------------------------------------------------------------
<S> <C> <C>
Angelo J. Castellino 01/19/95 20,000
Peter A. Bick 01/23/95 20,000
Soan Cheng 01/23/95 20,000
Daniel C.M. Sun 01/30/95 10,000
Christine M. Tarby 04/24/95 14,000
Peter Myers 3/1/95 350,000
Steve Teig 6/2/95 200,000
Jonathon Greene 6/3/95 100,000
</TABLE>
(ix) The Company has entered into Series J Option Agreements
with each of Steven Teig, Jonathan Greene and Andrew
Smellie, pursuant to which an aggregate of 465,000
shares of Series J Preferred Stock may be issued.
(x) The Company had previously entered into (A) that certain
Amended and Restated Stock Registration Rights Agreement
dated November 1, 1994, as amended on November 29, 1994,
January 15, 1995 and March 20, 1995 and (B) that certain
Stock Registration Rights Agreement dated October 12,
1994 which granted to certain investors registration
rights. These agreements were terminated pursuant to
Investors' Rights Agreement.
(xi) Warrant Agreement with Comdisco, Inc., dated December
20, 1994
(xii) Warrant Agreement with Sequoia Capital VI, dated August
17, 1995.
(xiii) Warrant Agreement with Sequoia Technology Partners VI,
dated August 17, 1995.
(xiv) Warrant Agreement with Sequoia XXIV, dated August 17,
1995.
(xv) Warrant Agreement with Paine Webber Incorporated as
Custodian of the Michael Grossman Rollover IRA, dated
August 17, 1995.
(xvi) Warrant Agreement with First Interstate Bank as Trustee
of SK International Securities Corp. 401(k) PS EM
Stephen J. Kandel, dated August 17, 1995.
(xvii) Warrant Agreement with Forward Ventures II, L.P., dated
August 17, 1995.
(xviii) Warrant Agreement with Steven M. Lash, dated August 17,
1995.
(xix) Two Warrant Agreements with Comdisco, Inc., dated April
15, 1996.
(xx) Warrant Agreement with Silicon Valley Bank, dated May
20, 1996.
(xxi) Warrant Agreement with MMC/GATX Partnership No. 1, dated
May 20, 1996.
(xxii) Warrant Agreement with Comdisco, Inc., dated June 27,
1996.
(xxiii) The Company entered into a consulting agreement with Ken
Rubenstein pursuant to which Mr. Rubenstein received
6,000 shares of the Company's common stock.
Schedule 2.7
<PAGE> 124
(xxiv) Stock Purchase Agreement (Series C Preferred) dated August
17, 1995 among the Company and the persons listed on
Schedule A thereto.
(xxv) Stock Purchase Agreement (Series C Preferred) dated April
9, 1996 among the Company and the persons listed on
Schedule A thereto.
(c) (i) Master Lease Agreement with Comdisco, Inc. ("Comdisco")
dated November 16, 1994.
(ii) The Company has made a loan to Peter Myers in the
principal amount of $150,0 00.
(iii) The Company loaned $66,125 to John Saunders for purchase
of a home; this loan is secured by a deed of trust.
(iv) Loan and Security Agreement by and among Silicon Valley
Bank and MMC/GATX Partnership No. 1 dated as of May 20,
1996.
(d) (i) The Company is party to employment agreements with the
following individuals: Lynn H. Caporale; Peter Myers;
Jonathan Greene; L. McCracken; J. Saunders; Steven Teig;
Andrew Smellie; and Vicente Anido. In addition, the
Company is a party to offer letters and/or memoranda
with the following employees in which certain terms and
conditions of the employee's employment are set forth:
Lucilla Andrews; D. Barnum; S. Bondy; B. Bosley; A.
Castellino; R. Chavez; S. Cheng; D. Comer; K. Dyer; Eric
Erb; T. Fitzpatrick; K. Granlund-Moyer; D. Kassel; V.
Matov; W. Moree; A. Purshottham; M. Ramirez-Weinhouse;
S. Ross; M. Ruis; M. Salkin; B. Shroyer; C. Smith; C.
Tarby; J. Williams; L. Zeng.
(ii) The Company is a party to the following consulting
agreements: H. Kiefer (dated 01/19/96); Dale L. Boger
(dated 05/01/94); Kim D. Janda (dated 08/09/94); Sydney
Brenner (dated 08/10/94); Chi-Huey Wong (dated 08/11/94)
and an ongoing relationship with a consulting group for
team building and leadership. The Company entered into a
letter agreement dated July 25, 1995 with Transpect
Incorporated ("Transpect") pursuant to which Transpect
is retained as an advisor and consultant with respect to
the establishment of a relationship with Daiichi
Pharmaceutical Co., Ltd (or any company mutually agreed
to). In addition, the Company is a party to Scientific
Advisory Board Agreement with the following individuals:
A. Bard (dated 09/07/95); D. Danishefsky (dated
04/08/95); W. Jorgensen (dated 05/18/95).
(e) (i) Agreement for Purchase and Sale of Assets dated
September 28, 1994 among the Company, Combichem, Inc., a
Delaware corporation, KPCB VI and KPCB IV-FF.
(ii) License Agreement with The Scripps Research Institute
("Scripps License").
(iii) Assignments of Dr. Sydney Brenner.
(iv) Sublicense Agreement dated July 20, 1995 between the
Company and Johnson & Johnson.
Schedule 2.7
<PAGE> 125
(v) Option Agreement with The Scripps Research Institute
("Scripps Option").
(vi) Evaluation Study and Test Site Agreement between the
Company and Chugai Pharmaceutical pursuant to which
Chugai has paid to the Company an amount equal to
$300,000 in order to Beta Test the Company's product,
which sum may be applied to future purchases of the
Company's products, and a portion of which sum the
Company may be required to return to Chugai in certain
circumstances.
(vii) Collaboration Agreement dated on or about March 29, 1996
between the Company and Teijin Limited to design,
synthesize and screen compound libraries for *** and ***
. The Company retains all rights with respect to
compounds in North America, Central America and South
America subject to an option to acquire such rights
granted to Teijin. Teijin retains all rights with
respect to compounds in all other territories. The
Company is entitled to receive a *** upfront fee,
milestone payments, annual research funding and
royalties from Teijin.
(viii) License and Test Site Agreement by and between the
Company and H. LUNDBECK A/S, a Danish corporation
("Lundbeck") dated May 20, 1996 pursuant to which
Lundbeck may pay $200,000 to the Company, which sum may
be applied to future purchases of the Company's
products. To date, Lundbeck has paid the Company
$120,000.
(ix) The Company has entered into a collaborative agreement
with Roche Bioscience pursuant to which certain rights
are licensed.
(x) See (a) above.
(f) The Company has entered into indemnification agreements with
each of the directors of the Company. In addition, other
agreements listed in this Schedule of Exceptions may contain
indemnification provisions. The Investors' Rights Agreement also
contains indemnification agreements.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Schedule 2.7
<PAGE> 126
(I) None.
(II) See (a) above.
(III) See (c)(ii) and (c)(iii) above.
(IV) See (a)(iv) and (a)(v) above.
In connection with the MSI transaction discussed above and in addition to
the agreements noted above, the Company also entered into a separate License
Agreement (pursuant to which it obtained a license to certain MSI products), an
Acknowledgement and General Release (pursuant to which the operation of certain
sections of Mr. Teig's prior contracts with MSI were waived and the Company and
Mr. Teig were released from claims arising out of such released sections of the
contracts).
The Company has performed all obligations and conditions required to be
performed or met by it through the date hereof under each of the Scripps License
and Scripps Option. The Scripps License is in full force and effect, and the
Scripps Option has not been exercised, as of the date hereof. The Company will
use its best efforts not to waive any rights of the Company under the Scripps
License or Scripps Option, without the consent of a majority of the outstanding
shares of Series C and D Preferred Stock (and shares of the Company's capital
stock issuable upon exchange or conversion of the Series C and D Preferred
Stock).
Schedule 2.7
<PAGE> 127
SCHEDULE 2.8
RELATED-PARTY TRANSACTIONS
Venture capital funds affiliated with directors participated in the
Company's prior rounds of financing and will purchase shares of the Company's
Series D Preferred Stock pursuant to the Agreement. Such directors may engage in
the development and financing of other companies and/or research projects which
may be developing, or may in the future develop, products which may compete
directly, or indirectly, with the products intended to be developed by the
Company.
See Schedule 2.7(c) above.
Schedule 2.8
<PAGE> 128
SCHEDULE 2.9
REGISTRATION RIGHTS
The Company is obligated to register shares of Common Stock issuable upon
conversion of Series Z Preferred Stock and Series C Preferred Stock issuable
upon exercise of warrants issued (or to be issued) in connection with the
Company's equipment lease lines.
Schedule 2.9
<PAGE> 129
SCHEDULE 2.10
PERMITS
The Company is in the process of obtaining permits in connection with
certain tenant improvements being made, or planned to be made at the Company's
facility at 9050 Camino Santa Fe, San Diego, CA 92121; compliance of such
improvements with the American Disability Act has not yet been approved.
Schedule 2.10
<PAGE> 130
SCHEDULE 2.15
TITLE TO PROPERTY AND ASSETS; LEASES
Under the terms of the Company's lease lines, Comdisco retains all rights
to the equipment purchased under such lines, with the Company having an option
to purchase at the completion of the term of the agreement.
Under the terms of the Loan and Security Agreement by and among the
Company, Silicon Valley Bank and MMC/GATX Partnership No. 1, Combichem
Corporation retains all rights to the equipment, fixtures and personal property
purchased using such funds, subject to security interest of lessors.
Schedule 2.15
<PAGE> 131
SCHEDULE 2.16
FINANCIAL STATEMENTS
The contingent severance payments due under certain employment
arrangements with the Company's employees are not reflected on the August 31,
1996 financial statements.
Schedule 2.16
<PAGE> 132
SCHEDULE 2.18
PATENTS AND TRADEMARKS
The Company filed intent to use application Serial No. 74/363,514 with the
United States Patent and Trademark Office ("PTO") to register the mark COMBICHEM
on February 26, 1993 in Class 42 for the services of combinatorial chemistry and
molecular biology research and analysis. The application was inadvertently
abandoned and a petition to revive the application, filed on June 14, 1995 with
the PTO was rejected. The Company filed a duplicate application Serial No.
74/684,382 on June 5, 1995 in case the petition to revive was denied. This
application was suspended pending resolution of a prior application.
The Company filed intent to use application Serial No. 74/363,515 to
register the mark COMBICHEM on February 26, 1993 in Class 5 for the
pharmaceuticals and chemical compounds. The application was inadvertently
abandoned and a petition to revive the application was rejected. The Company
filed a duplicate application Serial No. 74/599,352 on November 15, 1994. This
application was suspended pending resolution of a prior application for the
Company.
An intent to use application for the mark COMBISYN was filed by the
Company on February 13, 1995, and a Notice of Allowance was issued by the PTO on
September 3, 1996. Upon the filing of an acceptable Statement of Use, the
application will proceed to registration. The application was filed in Class 9
for scientific apparatus for use in synthesizing by combinatorial chemistry
small molecules for use in scientific research.
An intent to use application for the mark COMBIWARE was filed by the
Company November 7, 1995 and was approved for publication by the PTO. The
application was filed in Class 9 for computer software for use in scientific
research, mainly, for the design and maintenance of chemical libraries and the
automation of molecular synthesis in the field of combinatorial chemistry, an
instruction and user manual sold as a unit therewith.
In connection with the MSI License Agreement, the Company received certain
licenses to use MSI proprietary technology and granted to MSI an exclusive
option to negotiate a distribution agreement with respect to a stand-alone
chemical diversity measure software program.
The J&J Sublicense contains a grant-back of a non-exclusive irrevocable
royalty-free license (with the right to sublicense affiliates) under all patent
improvements for the term of the agreement.
See Schedule 2.7.
The Company has applied for a patent application entitled "A TEMPLATE FOR
SOLUTION PHASE SYNTHESIS OF COMBINATORIAL LIBRARIES", Docket Number 215/288, as
of October 17, 1995.
Schedule 2.18
<PAGE> 133
Hansruedi Kiefer assigned the Company all rights, title and interest in
and to the work described as and/or entitled the CombiSyn Synthesizer pursuant
to an Assignment Agreement dated as of January 1, 1996 and a Copyright
Assignment dated January 19, 1996.
Schedule 2.18
<PAGE> 134
SCHEDULE 2.19
MANUFACTURING AND MARKETING RIGHTS
Pursuant to the MSI License Agreement, the Company has granted to MSI an
exclusive option to negotiate a distribution agreement with respect to a
stand-alone chemical diversity measure software program.
LJL Biosystems, Inc. has rights to manufacture original prototypes only;
these prototypes were revised, and currently LJL Biosystems, Inc. is not
manufacturing prototypes.
Schedule 2.19
<PAGE> 135
SCHEDULE 2.23
INSURANCE
The Company has covenanted to certain investors to maintain key man life
insurance on the life of Steven Tieg in the amount of $2,000,000. The Company
currently maintains only $1,350,000 in insurance on the life of Mr. Tieg.
<PAGE> 1
EXHIBIT 10.9
COMBICHEM, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
November 15, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
REGISTRATION RIGHTS.................................................. 1
1.1 Certain Definitions.................................................. 1
1.2 Requested Registration............................................... 3
1.3 Company Registration................................................. 6
1.4 Expenses of Registration............................................. 7
1.5 Registration on Form S-3............................................. 8
1.6 Registration Procedures.............................................. 8
1.7 Indemnification...................................................... 10
1.8 Information by Holder................................................ 12
1.9 Limitations on Registration of Issues of Securities.................. 13
1.10 Rule 144 Reporting................................................... 13
1.11 Transfer or Assignment of Registration Rights........................ 13
1.12 Restrictions on Transfer............................................. 14
1.13 "Market Stand-Off" Agreement......................................... 15
1.14 Allocation of Registration Opportunities............................. 15
1.15 Delay of Registration................................................ 16
1.16 Termination of Registration Rights................................... 16
SECTION 2 COVENANTS OF THE COMPANY............................................. 16
2.1 Basic Financial Information.......................................... 16
2.2 Additional Information and Rights.................................... 17
2.3 Right of First Refusal............................................... 18
2.4 Key Person Life Insurance............................................ 20
2.5 Representation on Board of Directors................................. 21
2.6 Termination of Covenants............................................. 21
SECTION 3 MISCELLANEOUS........................................................ 21
3.1 Governing Law........................................................ 21
3.2 Successors and Assigns............................................... 21
3.3 Entire Agreement; Amendment; Waiver.................................. 21
3.4 Notices, etc......................................................... 22
3.5 Delays or Omissions.................................................. 22
3.6 Rights; Separability................................................. 22
3.7 Information Confidential............................................. 22
3.8 Titles and Subtitles................................................. 23
3.9 Counterparts......................................................... 23
</TABLE>
<PAGE> 3
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (this
"Agreement") is made and entered into as of the 15th day of November, 1996 by
and among CombiChem, Inc., a California corporation (the "Company"), and the
persons identified on Exhibit A attached hereto (the "Investors").
RECITALS
WHEREAS, certain of the Investors possess registration rights
pursuant to that certain Investors' Rights Agreement dated August 17, 1995, as
amended through the date hereof between the Company and such Investors (the
"Rights Agreement") and certain of the Investors possess information rights,
rights of first refusal and other rights, and the Company is obligated
thereunder, pursuant to the Rights Agreement; and
WHEREAS, the Rights Agreement may be modified or amended with the
written consent of the Company and the holders of a majority of the Registrable
Securities (as defined in the Rights Agreement) then outstanding; and
WHEREAS, the Investors which are parties thereto, which Investors
hold at least a majority of the Registrable Securities, desire to amend and
restate the Rights Agreement and to accept the rights created pursuant hereto in
lieu of the rights granted to them under the Rights Agreement; and
WHEREAS, certain Investors are parties to the Series D Preferred
Stock Purchase Agreement dated as of the date hereof among the Company and such
Investors (the "Series D Agreement"), certain of the Investors' obligations
under which are conditioned upon the execution and delivery by such Investors
and the Company of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the Investors who are parties to the Rights
Agreement agree that the Rights Agreement shall be amended and restated in its
entirety as set forth herein, and all parties hereto further agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; REGISTRATION RIGHTS
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
-1-
<PAGE> 4
(a) "Closing" shall mean the date of the initial sale of
shares of the Company's Series D Preferred Stock.
(b) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(c) "Holder" shall mean any Investor who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been transferred in compliance with
Section 1.11 hereof.
(d) "Initial Offering" shall mean the Company's first firm
commitment underwritten public offering of its Common Stock registered under the
Securities Act.
(e) "Initiating Holders" shall mean any Holder or Holders
who in the aggregate hold not less than fifty percent (50%) of the outstanding
Registrable Securities. For purposes of such calculation, Holders of Shares
shall be considered to hold the shares of Common Stock then issuable upon
conversion of such Shares.
(f) "JAFCO Funds" shall mean Japan Associated Finance Co.,
Ltd. ("JAFCO") and certain Investment Enterprise Partnerships affiliated with
JAFCO which are holders of Shares.
(g) "Other Shareholders" shall mean persons other than
Holders who, by virtue of agreements with the Company, are entitled to include
their securities in certain registrations.
(h) "Registrable Securities" shall mean (i) shares of
Common Stock issued or issuable pursuant to the conversion of the Shares and
(ii) any Common Stock issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to or in exchange for or in replacement of the shares
referenced in (i) above; provided, however, that Registrable Securities shall
not include any such securities sold by a person to the public either pursuant
to a registration statement or Rule 144 or sold in a private transaction in
which the transferor's rights under this Section 1 are not assigned.
(i) The terms "register," "registered" and "registration"
shall refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
-2-
<PAGE> 5
(j) "Registration Expenses" shall mean all expenses
incurred in effecting any registration pursuant to this Agreement, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, fees
and disbursements of one counsel for the Holders (solely with respect to
registrations pursuant to Sections 1.2 and 1.3 hereof), blue sky fees and
expenses, expenses of any regular or special audits incident to or required by
any such registration, but shall not include Selling Expenses (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
(k) "Rule 144" shall mean Rule 144 as promulgated by the
SEC under the Securities Act, as such Rule may be amended from time to time, or
any similar successor rule that may be promulgated by the SEC.
(l) "Rule 145" shall mean Rule 145 as promulgated by the
SEC under the Securities Act, as such Rule may be amended from time to time, or
any similar successor rule that may be promulgated by the SEC.
(m) "SEC" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(n) "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time,
corresponding to such act.
(o) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities and all fees and disbursements of counsel for any Holder (other than
the fees and disbursements of the one counsel included in Registration
Expenses).
(p) "Shares" shall mean shares of the Company's Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Series D-1 Preferred Stock
held by the Investors.
1.2 Requested Registration.
(a) Request for Registration. If the Company shall receive
from Initiating Holders at any time or times not earlier than the earlier of (i)
January 1, 1998 or (ii) six (6) months after the effective date of the first
registration statement filed by the Company covering an underwritten offering of
any of its securities to the general public, a written request specifying that
it is made pursuant to this Section 1.2 that the Company effect a registration
with respect to all or a part of the Registrable Securities having a reasonably
-3-
<PAGE> 6
anticipated aggregate offering price, net of underwriting discounts and
commissions, that exceeds $12,000,000, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent best
efforts to effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable blue sky
or other state securities laws and appropriate compliance with the Securities
Act) as would permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after such written notice from the
Company is effective.
The Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and except as may
be required by the Securities Act; or
(B) After the Company has effected
two such registrations pursuant to this Section 1.2(a) and such registrations
have been declared or ordered effective; or
(C) During the period starting with
the date of filing of and ending on a date one hundred eighty (180) days after
the effective date of a registration pursuant to Section 1.3 hereof; provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or
(D) If the Initiating Holders
propose to dispose of shares of Registrable Securities that may be immediately
registered on Form S-3 pursuant to a request made under Section 1.5 hereof.
(b) Subject to the foregoing Section 1.2(a)(ii) (A)
through (D), the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Initiating Holders; provided,
however, that if (i) in the good faith judgment of the Board of Directors of the
Company, such registration would be seriously detrimental to the Company and the
Board of Directors of the Company concludes, as a result, that it is essential
to defer the filing of such registration statement at such time, and (ii) the
Company shall furnish to such Holders a
-4-
<PAGE> 7
certificate signed by the president of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for such registration statement to be filed in the
near future and that it is, therefore, essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for the period during which such disclosure would be seriously
detrimental, provided, that the Company may not defer the filing for a period of
more than ninety (90) days after receipt of the request of the Initiating
Holders, and, provided further, that (except as provided in Section
1.2(a)(ii)(C) above) the Company shall not defer its obligation in this manner
more than once in any twelve-month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 1.2(b) and 1.14
hereof, include other securities of the Company and may include securities of
the Company being sold for the account of the Company.
(c) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 1.2 and the Company shall include such information in the
written notice referred to in Section 1.2(a)(i) above. The right of any Holder
to registration pursuant to Section 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder with respect to
such participation and inclusion) to the extent provided herein. A Holder may
elect to include in such underwriting all or a part of the Registrable
Securities he holds.
(d) Procedures. If the Company shall request inclusion in
any registration pursuant to Section 1.2 of securities being sold for its own
account, or if other persons shall request inclusion in any registration
pursuant to Section 1.2, the Initiating Holders shall, on behalf of all Holders,
offer to include such securities in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this Section 1
(including Section 1.13). The Company shall (together with all Holders, and
other persons proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for such underwriting
by a majority in interest of the Initiating Holders, which underwriter(s) are
reasonably acceptable to the Company. Notwithstanding any other provision of
this Section 1.2, if the representative of the underwriters advises the
Initiating Holders in writing that marketing factors require a limitation on the
number of shares to be underwritten, the number of shares to be included in the
underwriting or registration shall be allocated as set forth in Section 1.14
hereof. If the person who has requested inclusion in such registration as
provided above does not agree to the terms of any such underwriting, such person
shall be excluded therefrom by written notice from the Company, the underwriter
or the Initiating Holders. The securities so excluded shall also be withdrawn
from
-5-
<PAGE> 8
registration. Any Registrable Securities or other securities excluded shall also
be withdrawn from such registration. If shares are so withdrawn from the
registration and if the number of shares to be included in such registration was
previously reduced as a result of marketing factors pursuant to this Section
1.2(d), then the Company shall offer to all holders who have retained rights to
include securities in the registration the right to include additional
securities in the registration in an aggregate amount equal to the number of
shares withdrawn, with such shares to be allocated among such Holders requesting
additional inclusion in accordance with Section 1.14.
1.3 Company Registration.
(a) Company Registration. If the Company shall determine
to register any of its securities either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights (other than pursuant to Section 1.2 hereof), other than a registration
relating solely to employee benefit plans, or a registration relating solely to
a Rule 145 transaction, or a registration on any registration form which does
not permit secondary sales, or the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public,
the Company will:
(i) promptly give to each Holder written notice
thereof; and
(ii) use its best efforts to include in such
registration (and any related qualification under blue sky laws or other
compliance), except as set forth in Section 1.3(b) below, and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder within twenty (20) days after
the written notice from the Company described in Section 1.3(a)(i) above is
effective. Such written request may specify all or a part of a Holder's
Registrable Securities for inclusion.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the holders of other securities of the Company
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 1.3, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable
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<PAGE> 9
Securities to be included in, the registration and underwriting. The Company
shall so advise all holders of securities requesting registration, and the
number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated first to the Company for
securities being sold for its own account and thereafter as set forth in Section
1.14. If any person does not agree to the terms of any such underwriting, he
shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the number
of shares of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in accordance
with Section 1.14 hereof.
1.4 Expenses of Registration. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
Sections 1.3 and 1.5 hereof, and the first two registrations pursuant to Section
1.2 hereof shall be borne by the Company; provided, however, that if the Holders
bear the Registration Expenses for any registration proceeding begun pursuant to
Section 1.2 and subsequently withdrawn by the Holders registering shares
therein, such registration proceeding shall not be counted as a requested
registration pursuant to Section 1.2 hereof, except in the event that such
withdrawal is based upon material adverse information relating to the Company
that is different from the information known or available (upon request from the
Company or otherwise) to the Holders requesting registration at the time of
their request for registration under Section 1.2, in which event such
registration shall not be treated as a counted registration for purposes of
Section 1.2 hereof even though the Holders do not bear the Registration Expenses
for such registration. All Selling Expenses relating to securities so registered
shall be borne by the holders of such securities pro rata on the basis of the
number of shares of securities so registered on their behalf.
1.5 Registration on Form S-3.
(a) After the Initial Offering, the Company shall use its
best efforts to qualify for registration on Form S-3 or any comparable or
successor form or forms. After the Company has qualified for the use of Form
S-3, in addition to the rights contained in the foregoing provisions of this
Section 1, the Holders of Registrable Securities shall have the right to request
registrations on Form S-3 (such requests shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
methods of disposition of such shares by such Holder or Holders), provided,
however, that the Company shall not be obligated to effect any such registration
if (i) the Holders, together with the
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holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) on Form S-3 at an aggregate price to the public of less than $500,000,
or (ii) in the event that the Company shall furnish the certification described
in paragraph 1.2(a)(ii) (but subject to the limitations set forth therein) or
(iii) in a given twelve-month period, after the Company has effected one (1)
such registration in any such period.
(b) If a request complying with the requirements of
Section 1.5(a) hereof is delivered to the Company, the provisions of Sections
1.2(a)(i) and (ii) and Section 1.2(b) hereof shall apply to such registration.
If the registration is for an underwritten offering, the provisions of Sections
1.2(c) and 1.2(d) hereof shall apply to such registration.
1.6 Registration Procedures. In the case of each registration
effected by the Company pursuant to Section 1, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; provided, however, that (i) such 120-day period shall be extended
for a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Securities Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (I) and (II) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other
documents incident thereto, including any preliminary prospectus or amendment of
or supplement to the prospectus, as a Holder from time to time may reasonably
request;
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(d) Notify each seller of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act on the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) Use all reasonable efforts to register and qualify the
securities covered by the registration statement under such other securities or
Blue Sky laws of such jurisdiction as shall be reasonably requested by the
Holders; provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such state or jurisdiction;
(f) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed;
(g) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;
(h) Otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve (12) months, but not more than eighteen (18) months,
beginning with the first month after the effective date of the Registration
Statement, which earnings statement shall satisfy the provisions of Section
II(a) of the Securities Act;
(i) In connection with any underwritten offering pursuant
to a registration statement filed pursuant to Section 1.2 hereof, the Company
will enter into an underwriting agreement reasonably necessary to effect the
offer and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions; and
(j) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the
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<PAGE> 12
underwriters for sale, if such securities are being sold through underwriters,
or, if such securities are not being sold through underwriters, on the date that
such registration statement with respect to such securities becomes effective,
(A) an opinion, dated as of such date, of the counsel representing the Company
for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting registration,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (B) a letter dated as of such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration, addressed to the
underwriters, if any, and if permitted by applicable accounting standards, to
the Holders requesting registration of Registrable Securities.
1.7 Indemnification.
(a) The Company will indemnify each Holder, each of its
officers, directors and partners, legal counsel and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this Section 1 and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages and liabilities (or
actions, proceedings or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel and accountants and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein. It is agreed that the indemnity agreement contained in this Section
1.7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent has not been unreasonably withheld).
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(b) Each Holder will, if Registrable Securities held by
him are included in the securities as to which such registration, qualification
or compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder and Other Shareholder
and each of their officers, directors and partners, and each person controlling
such Holder or Other Shareholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Holders, Other Shareholders,
directors, officers, partners, legal counsel and accountants, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated specifically for use therein,
provided, however, that the obligations of such Holder hereunder shall not apply
to amounts paid in settlement of any such claims, losses, damages or liabilities
(or actions in respect thereof) if such settlement is effected without the
consent of such Holder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this
Section 1.7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
1, to the extent such failure is not prejudicial. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
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<PAGE> 14
(d) If the indemnification provided for in this Section
1.7 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
1.8 Information by Holder. Each Holder of Registrable Securities
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.9 Limitations on Registration of Issues of Securities. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of a majority in interest of the Holders, enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder any registration rights the terms of
which are more favorable than the registration rights granted to the Holders
hereunder.
1.10 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the Company
agrees to use its best efforts to:
(a) Make and keep public information available as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times from and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
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<PAGE> 15
(b) File with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting
requirements;
(c) So long as a Holder owns any Registrable Securities,
furnish to the Holder forthwith upon written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time from and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as a Holder may reasonably request in availing itself of any
rule or regulation of the SEC allowing a Holder to sell any such securities
without registration.
1.11 Transfer or Assignment of Registration Rights. The rights to
cause the Company to register securities granted to a Holder by the Company
under Sections 1.2, 1.3 and 1.5 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than 25,000 shares of Registrable
Securities (as presently constituted and subject to subsequent adjustments for
stock splits, stock dividends, reverse stock splits and the like), and only
provided that the Company is given written notice at the time of or within a
reasonable time after said transfer or assignment, stating the name and address
of said transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned, and provided
further that the transferee or assignee of such rights assumes the obligations
of such Holder under this Article 1.
1.12 Restrictions on Transfer.
(a) Each Holder agrees not to transfer or dispose of all
or any portion of the Registrable Securities unless and until the proposed
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 1.12, provided and to the extent this Section 1.12 is then
applicable and:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (B) if requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, to
the effect that such disposition will not require registration of such shares
under the Securities Act.
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<PAGE> 16
Notwithstanding the provisions of subsections (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
(A) by a Holder which is a partnership to its partners or retired partners in
accordance with partnership interests, (B) to a Holder's family member or trust
for the benefit of an individual Holder, provided that the transferee will be
subject to the terms of this Section 1.12 to the same extent as if he were an
original Holder hereunder, or (C) pursuant to Rule 144(k); provided, however,
that the Company must be satisfied in its reasonable discretion that the
proposed sale of securities fully qualifies with all Rule 144 requirements.
(b) Each certificate representing Registrable Securities
shall (unless otherwise permitted by the provisions of this Agreement) be
stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
1.13 "Market Stand-Off" Agreement. If requested by the Company
and an underwriter of Common Stock (or other securities) of the Company, an
Investor shall not sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by such Investor (other than those
included in the registration) during the one hundred eighty (180) day period
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that all Holders and officers and directors
of the Company enter into similar agreements.
The obligations described in this Section 1.13 shall not apply to
a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms which may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4, Form S-14 or Form S-15 or
similar forms which may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of said one hundred eighty (180) day
period.
1.14 Allocation of Registration Opportunities. In any
circumstance in which all of the Registrable Securities and other shares of
Common Stock of the Company (including shares of Common Stock issued or issuable
upon conversion of shares of any currently unissued series of Preferred Stock of
the Company) with registration rights (the "Other Shares") requested to be
included in a registration on behalf of the Holders or other
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<PAGE> 17
selling shareholders cannot be so included as a result of limitations of the
aggregate number of shares of Registrable Securities and Other Shares which may
be so included, the number of shares of Registrable Securities and Other Shares
which may be so included shall be allocated among the Holders and other selling
shareholders requesting inclusion of shares pro rata on the basis of the number
of shares of Registrable Securities and Other Shares that would be held by such
Holders and other selling shareholders, assuming conversion; provided, however,
that, so that such allocation shall not operate to reduce the aggregate number
of Registrable Securities and Other Shares to be included in such registration,
if any Holder or other selling shareholder does not request inclusion of the
maximum number of shares of Registrable Securities and Other Shares allocated to
him pursuant to the above-described procedure, the remaining portion of his
allocation shall be reallocated among those requesting Holders and other selling
shareholders whose allocations did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Securities and Other Shares that
would be held by such Holders and other selling shareholders, assuming
conversion, and this procedure shall be repeated until all of the shares of
Registrable Securities and Other Shares that may be included in the registration
on behalf of the Holders and other selling shareholders have been so allocated.
The Company shall not limit the number of Registrable Securities to be included
in a registration pursuant to this Agreement in order to include shares held by
shareholders with no registration rights or to include Founder's Stock or any
other shares of stock issued to employees, officers, directors or consultants
pursuant to the Company's stock option plan, or with respect to registrations
under Sections 1.2 or 1.5 hereof, in order to include in such registration
securities registered for the Company's own account or included at the request
of the Company pursuant to Section 1.3 hereof without the prior written consent
of seventy percent (70%) of the Holders; provided, further, that in no event
will the amount of securities of the selling Holders included in a registration
pursuant to Section 1.3 hereof be reduced below twenty percent (20%) of the
total amount of securities included in such offering, unless such offering is
the Initial Offering of the Company's securities in which case the selling
shareholders may be excluded entirely if the underwriters make the determination
described above and no other shareholder's securities are included. For purposes
of determining allocation hereunder, (a) for any selling shareholder which is a
Holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons will be deemed to be a single "selling
shareholder," and (b) all of the JAFCO Funds together shall be deemed to be a
"selling shareholder." Any pro-rata reduction with respect to any such "selling
shareholder" will be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder."
1.15 Delay of Registration. No Holder shall have any right to
take any, action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
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1.16 Termination of Registration Rights. The right of any Holder
to request registration or inclusion in any registration pursuant to Sections
1.2, 1.3 or 1.5 shall terminate on the closing of the first Company-initiated
registered public offering of Common Stock of the Company, provided that all
shares of Registrable Securities held or entitled to be held upon conversion by
such Holder may immediately be sold under Rule 144 during any 90-day period, or
on such date after the closing of the first Company-initiated registered public
offering of Common Stock of the Company as all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period.
SECTION 2
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees, so long as any Holder
owns any Registrable Shares as follows:
2.1 Basic Financial Information. The Company will furnish the
following reports to each Holder:
(a) As soon as practicable after the end of each fiscal
year of the Company, and in any event within ninety (90) days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any, as at
the end of such fiscal year, and consolidated statements of income and sources
and applications of funds of the Company and its subsidiaries, if any, for such
year, prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and certified by
independent public accountants of recognized national standing selected by the
Company.
(b) As soon as practicable after the end of the first,
second and third quarterly accounting periods in each fiscal year of the
Company, and in any event within forty-five (45) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of each
such quarterly period, and consolidated statements of income and sources and
applications of funds of the Company and its subsidiaries for such period and
for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in
comparative form the figures for the corresponding periods of the previous
fiscal year and to the Company's operating plan then in effect and approved by
its Board of Directors, subject to changes resulting from normal year-end audit
adjustments, all in reasonable detail and certified by the principal financial
or accounting officer of the Company, except that such balance sheet need not
contain the notes required by generally accepted accounting principles.
2.2 Additional Information and Rights.
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(a) The Company will permit any Investor, so long as such
Investor or its representative (treating all the JAFCO Funds as a single
Investor) owns at least 500,000 Shares, or such number of shares of Common Stock
issued upon conversion of 500,000 or more Shares, or any combination thereof (as
presently constituted and subject to subsequent adjustment for stock splits,
stock dividends, reverse stock splits, recapitalizations and the like) (a
"Significant Holder") (or a representative of any Significant Holder) to visit
and inspect any of the properties of the Company, including its books of account
and other records (and make copies thereof and take extracts therefrom), and to
discuss its affairs, finances and accounts with the Company's officers and its
independent public accountants, all at such reasonable times and as often as any
such person may reasonably request.
(b) Until the earlier to occur of (i) the date on which
the Company is subject to the reporting requirements of Sections 13(a) or 15(d)
of the Exchange Act, or (ii) the date on which quotations for the Common Stock
of the Company are reported by the automated quotations systems operated by the
National Association of Securities Dealers, Inc., or by an equivalent quotations
system, the Company will deliver the reports described below in this Section 2.2
to each Significant Holder:
(i) As soon as practical after the end of each
month and in any event within thirty (30) days thereafter a consolidated balance
sheet of the Company and its subsidiaries, if any, as at the end of such month
and consolidated statements of income and of sources and applications of funds
of the Company and its subsidiaries, for each month and for the current fiscal
year of the Company to date, all subject to normal year-end audit adjustments,
prepared in accordance with generally accepted accounting principles
consistently applied and certified by the principal financial or accounting
officer of the Company, together with a comparison of such statements to the
corresponding periods of the prior fiscal year and to the Company's operating
plan then in effect and approved by its Board of Directors.
(c) The provisions of Section 2.1 and this Section 2.2
shall not be in limitation of any rights which any Holder or Significant Holder
may have with respect to the books and records of the Company and its
subsidiaries, or to inspect their properties or discuss their affairs, finances
and accounts, under the laws of the jurisdictions in which they are
incorporated.
(d) Anything in Section 2 to the contrary notwithstanding,
no Holder or Significant Holder by reason of this Agreement shall have access to
any trade secrets or classified information of the Company. Each Significant
Holder hereby agrees to hold in confidence and trust and not to misuse or
disclose any confidential information provided pursuant to this Section 2.2.
(e) Each Holder who represents to the Company that it is a
"venture capital operating company" for purposes of Department of Labor
Regulation Section 2510.3-101
-17-
<PAGE> 20
shall in addition have the right to consult with and advise the officers of the
Company as to the management of the Company.
2.3 Right of First Refusal. The Company hereby grants to each
Holder and its affiliates who own any shares of Series A, Series B, Series C,
Series D, Series A-1, Series B-1, Series C-1 or Series D-1 Preferred Stock (the
"Cash Preferred") or any shares of Common Stock issued upon conversion of the
Cash Preferred (the "Rights Holder") the right of first refusal to purchase a
Pro Rata Share (as defined in this Section 2.3) of New Securities (as defined in
this Section 2.3) which the Company may, from time to time, propose to sell and
issue. A Rights Holder's Pro Rata Share, for purposes of this right of first
refusal, is the ratio of the number of shares of Common Stock owned by such
Rights Holder immediately prior to the issuance of New Securities, assuming full
conversion of the Shares, to the total number of shares of Common Stock
outstanding immediately prior to the issuance of New Securities, assuming full
conversion of the Shares and exercise of all outstanding rights, options and
warrants to acquire Common Stock of the Company. For purposes of this Section
2.3, each of the JAFCO Funds shall be deemed to have purchased its Pro Rata
Share if one or more of the JAFCO Funds shall have purchased an amount of New
Securities equal to the Pro Rata Share of the JAFCO Funds in the aggregate. Each
Rights Holder shall have a right of over-allotment such that if any Rights
Holder fails to exercise its right hereunder to purchase its pro rata share of
New Securities, the other Rights Holders may purchase the non-purchasing Rights
Holder's portion on a pro rata basis within ten (10) days from the date such
non-purchasing Rights Holder fails to exercise its right hereunder to purchase
its Pro Rata Share of New Securities. This right of first refusal shall be
subject to the following provisions:
(a) "New Securities" shall mean any capital stock
(including Common Stock and/or Preferred Stock) of the Company whether now
authorized or not, and rights, options or warrants to purchase such capital
stock, and securities of any type whatsoever that are, or may become,
convertible into capital stock; provided that the term "New Securities" does not
include (i) securities purchased under the Series D Agreement; (ii) securities
issued upon conversion of the Shares; (iii) securities issued pursuant to the
acquisition of another business entity or business segment of any such entity by
the Company by merger, purchase of substantially all the assets or other
reorganization whereby the Company will own not less than fifty-one percent
(51%) of the voting power of such business entity or business segment of any
such entity; (iv) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, provided such borrowings do not have any equity features including
warrants, options or other rights to purchase capital stock and are not
convertible into capital stock of the Company; (v) securities issued to
employees, consultants, officers or directors of the Company pursuant to any
stock option, stock purchase or stock bonus plan, agreement or arrangement
approved by the Board of Directors; (vi) securities issued to vendors or
customers or to other persons in similar commercial situations with the Company
if such issuance is approved by the Board of
-18-
<PAGE> 21
Directors; (vii) securities issued in connection with obtaining lease financing,
whether issued to a lessor, guarantor or other person; (viii) securities issued
in a firm commitment underwritten public offering pursuant to a registration
under the Securities Act with an aggregate offering price to the public in
excess of $5.0 million; (ix) securities issued in connection with any stock
split, stock dividend or recapitalization of the Company; and (x) any right,
option or warrant to acquire any security convertible into the securities
excluded from the definition of New Securities pursuant to subsections (i)
through (ix) above.
(b) In the event the Company proposes to undertake an
issuance of New Securities, it shall give each Rights Holder written notice of
its intention, describing the type of New Securities, and their price and the
general terms upon which the Company proposes to issue the same. Each Rights
Holder shall have twenty (20) days after any such notice is effective to agree
to purchase such Rights Holder's Pro Rata Share of such New Securities for the
price and upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
(c) In the event the Rights Holders fail to exercise fully
the right of first refusal within said twenty (20)-day period and after the
expiration of the ten (10)-day period for the exercise of the over-allotment
provisions of this Section 2.3, the Company shall have one hundred twenty (120)
days thereafter to sell or enter into an agreement (pursuant to which the sale
of New Securities covered thereby shall be closed, if at all, within one hundred
twenty (120) days from the date of said agreement) to sell the New Securities
respecting which the Rights Holders' right of first refusal option set forth in
this Section 2.3 was not exercised, at a price and upon terms no more favorable
to the purchasers thereof than specified in the Company's notice to Rights
Holders pursuant to Section 2.3(b). In the event the Company has not sold within
said one hundred twenty (120)-day period or entered into an agreement to sell
the New Securities within said one hundred twenty (120)-day period (or sold and
issued New Securities in accordance with the foregoing within one hundred twenty
(120) days from the date of said agreement), the Company shall not thereafter
issue or sell any New Securities, without first again offering such securities
to the Rights Holders in the manner provided in Section 2.3(b) above.
(d) At any time following the date of this Agreement, if
the Company has complied with its notice obligations pursuant to this Section
2.3, or such obligations have been waived, and the Company thereafter proceeds
to issue or sell New Securities and a Rights Holder does not acquire his, her or
its Pro Rata Share (a "NonParticipating Rights Holder"), then all of such
Non-Participating Rights Holder's Cash Preferred shall automatically and without
further action on the part of such holder be converted, in accordance with the
provisions of Article III(B)(4)(m) of the Company's Amended and Restated
Articles of Incorporation.
(e) The right of first refusal granted under this
Agreement shall expire upon, and shall not be applicable to, the first sale of
Common Stock of the Company
-19-
<PAGE> 22
to the public effected pursuant to a registration statement filed with, and
declared effective by, the SEC under the Securities Act, with proceeds of more
than $5,000,000.
(f) The right of first refusal set forth in this Section
2.3 may not be assigned or transferred, except that (i) such right is assignable
by each Rights Holder to any wholly owned subsidiary or parent of, or to any
corporation or entity that is, within the meaning of the Securities Act,
controlling, controlled by or under common control with, any such Rights Holder,
and (ii) such right is assignable between and among any of the Rights Holders.
2.4 Key Person Life Insurance. The Company has as of the date
hereof obtained from financially sound and reputable insurers term life
insurance on the life of Steve Teig in the amount of [$2,000,000] (the "Teig
Insurance"), and shall maintain with financially sound and reputable insurers
the Teig Insurance except as otherwise decided in accordance with policies
adopted by the Company's Board of Directors. Such policy shall name the Company
as loss payee and shall not be cancelable by the Company without prior approval
of the Board of Directors.
2.5 Representation on Board of Directors. So long as any Shares
remain outstanding, the Company will use its best efforts to cause and maintain
the election to the Board of Directors of (a) two people designated by the
holders of a majority of the Series C Preferred Stock outstanding, including
Common Stock issued upon conversion of such Series C Preferred Stock (each a
"Series C Director"), and (b) two people designated by the holders of a majority
of the Series A and Series B Preferred Stock outstanding, including Common Stock
issued upon conversion of such Series A and B Preferred Stock. One Series C
Director shall be designated by The Sprout Group and the other Series C Director
shall be designated, subject to the consent of The Sprout Group, by a holder of
at least 2,419,355 shares of Series C Preferred Stock in the aggregate. In the
event that two or more holders of Series C Preferred Stock, other than The
Sprout Group, each hold in excess of 2,419,355 shares of Series C Preferred
Stock, then that holder holding the greatest number of shares of Series C
Preferred Stock shall have the right to designate the remaining Series C
Director. In the event that two or more such holders hold an equal number of
Series C Preferred Stock, then The Sprout Group shall determine which of them
shall designate the remaining Series C Director. For the purposes of this
paragraph, a "holder" shall include the affiliates of any holder.
2.6 Termination of Covenants. The covenants set forth in this
Section 2 shall terminate and be of no further force and effect after the time
of effectiveness of the Company's first firm commitment underwritten public
offering registered under the Securities Act.
-20-
<PAGE> 23
SECTION 3
MISCELLANEOUS
3.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California, as if entered into by and
between California residents exclusively for performance entirely within
California.
3.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
3.3 Entire Agreement; Amendment; Waiver. This Agreement
(including the Exhibits hereto) constitutes the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated, except by a written instrument signed by the Company
and the holders of at least fifty percent (50%) of the Registrable Shares and
any such amendment, waiver, discharge or termination shall be binding on all the
Holders, but in no event shall the obligation of any Holder hereunder be
materially increased, except upon the written consent of such Holder.
3.4 Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, or delivered personally addressed by hand or
special courier (a) if to a Holder, as indicated on the list of Holders attached
hereto as Exhibit A, or at such other address as such Investor or permitted
assignee shall have furnished to the Company in writing, or (b) if to the
Company, at 9050 Camino Santa Fe, San Diego, California 92121, or at such other
address as the Company shall have furnished to each holder in writing. All such
notices and other written communications shall be effective (i) if mailed, five
(5) days after mailing and (ii) if delivered, upon delivery.
3.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement or any
waiver on the part of any Holder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any Holder, shall be cumulative and
not alternative.
-21-
<PAGE> 24
3.6 Rights; Separability. Unless otherwise expressly provided
herein, a Holder's rights hereunder are several rights, not rights jointly held
with any of the other Holders. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
3.7 Information Confidential. Each Holder acknowledges that the
information received by them pursuant hereto may be confidential and for its use
only, and it will not use such confidential information in violation of the
Exchange Act or reproduce, disclose or disseminate such information to any other
person (other than its employees or agents having a need to know the contents of
such information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or such Holder is required to disclose such
information by a governmental body.
3.8 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
3.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[Remainder of Page Intentionally Left Blank]
-22-
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By: /s/ Pierre Lamond
---------------------------------
Title:
------------------------------
HOLDER:
------------------------------------
[Name of Holder]
By:
---------------------------------
Title:
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
FORWARD VENTURES II., L.P.
------------------------------------
[Name of Holder]
By: /s/ Ivor Royston
---------------------------------
Title: Ivor Royston, General Partner
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
SEQUOIA CAPITAL VI
SEQUOIA TECHNOLOGY PARTNERS VI
SEQUOIA XXIV
SEQUOIA 1995
------------------------------------
[Name of Holder]
By: /s/ Pierre Lamond
---------------------------------
Title: General Partner
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
LYNN CAPORALE
------------------------------------
[Name of Holder]
By: /s/ Lynn Caporale
---------------------------------
Title: Vice President
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
SYDNEY BRENNER
------------------------------------
[Name of Holder]
By: /s/ Sydney Brenner
---------------------------------
Title:
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
SPROUT CAPITAL VII, L.P.
------------------------------------
[Name of Holder]
By: /s/ P. Chambon
---------------------------------
Title: Vice President, Sprout Group
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
DLJ CAPITAL CORPORATION
------------------------------------
[Name of Holder]
By: /s/ P. Chambon
---------------------------------
Title:
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
C.V. SOFINNOVA VENTURES PARTNERS III
------------------------------------
[Name of Holder]
By: /s/ Alix Marduel
--------------------------------
Title: Alix Marduel, M.D.
------------------------------
General Partner
Sofinnova Management L.P.
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
SINGAPORE BIO-INNOVATIONS PTE LTD
------------------------------------
[Name of Holder]
By: /s/ Yong-Sea Teoh
---------------------------------
Title: Director & General Manager
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
PAINE WEBBER, CUST, FBO
MICHAEL GROSSMAN, IRA R/O
------------------------------------
[Name of Holder]
By: /s/ Illegible
---------------------------------
Title: Branch Director
------------------------------
By: /s/ Michael Grossman
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
STEVEN M. LASH
------------------------------------
[Name of Holder]
By: /s/ Steven M. Lash
---------------------------------
Title:
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
Byron T. Franzen
------------------------------------
[Name of Holder]
By: /s/ Byron T. Franzen
---------------------------------
Title:
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
THE M.L. LAWRENCE TRUST
------------------------------------
[Name of Holder]
By: /s/ Rebecca Wood
---------------------------------
Title: Trustee
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
FARLEY INC.
------------------------------------
[Name of Holder]
By: /s/ Jeffrey Schroeder
---------------------------------
Title: Chief Financial Officer
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
------------------------------------------
Title:
---------------------------------------
HOLDER:
SORRENTO VENTURES II, L.P.
----------------------------------------------
[Name of Holder]
By: /s/ Robert M. Jaffe
------------------------------------------
Title: President, Sorrento Associates, Inc.
----------------------------------------
General Partner, Sorrento Equity Partners L.P.
General Partner, Sorrento Ventures II L.P.
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
SORRENTO GROWTH PARTNERS I, L.P.
----------------------------------------------
[Name of Holder]
By: /s/ Robert M. Jaffe
-------------------------------------------
Title: President, Sorrento Growth, Inc.
-----------------------------------------
General Partner, Sorrento Equity Growth
Partners I, L.P.
General Partner, Sorrento Growth Partners I, L.P.
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
COMDISCO, INC.
------------------------------------
[Name of Holder]
By: /s/ Jill C. Hanses
---------------------------------
Title: Assistant Vice President
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
------------------------------------
Title:
---------------------------------
HOLDER:
HOLDER:
BRINSON VENTURE CAPITAL FUND III, L.P.
BY ITS GENERAL PARTNER, BRINSON
PARTNERS , INC.
---------------------------------------
[Name of Holder]
By: /s/ Terry Gould
-----------------------------------
Title: Partner, Brinson Partners, Inc.
---------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
BRINSON TRUST COMPANY AS TRUSTEE
OF THE BRINSON MAP VENTURE CAPITAL
FUND III
------------------------------------
[Name of Holder]
By: /s/ Terry Gould
---------------------------------
Title: Assistant Trust Officer
------------------------------
Brinson Trust Company
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
JAPAN ASSOCIATED FINANCE CO., LTD.
------------------------------------
[Name of Holder]
By: /s/ Masaki Yoshida
---------------------------------
Title: Masaki Yoshida, President
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
JAFCO G-5 INVESTMENT ENTERPRISE
PARTNERSHIP
------------------------------------
[Name of Holder]
By: /s/ Masaki Yoshida
---------------------------------------------
Title: Masaki Yoshida, President
------------------------------------------
Japan Associated Finance Co., Ltd. Its Executive
Partner
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
JAFCO R-1 (A) INVESTMENT ENTERPRISE
PARTNERSHIP
------------------------------------
[Name of Holder]
By: /s/ Masaki Yoshida
---------------------------------------------
Title: Masaki Yoshida, President
-----------------------------------------
Japan Associated Finance Co., Ltd. Its Executive
Partner
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
JAFCO R-1(B) INVESTEMENT ENTERPRISE
PARTNERSHIP
------------------------------------
[Name of Holder]
By: /s/ Masaki Yoshida
---------------------------------------------
Title: Masaki Yoshida, President
------------------------------------------
Japan Associated Finance Co., Ltd. Its Executive
Partner
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
JAFCO R-2 INVESTMENT ENTERPRISE
PARTNERSHIP
------------------------------------
[Name of Holder]
By: /s/ Masaki Yoshida
---------------------------------------------
Title: Masaki Yoshida, President
------------------------------------------
Japan Associated Finance Co., Ltd. Its Executive
Partner
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 49
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
BRENTWOOD ASSOCIATES VII, L.P. BY:
BRENTWOOD VII VENTURES
ITS GENERAL PARTNER
------------------------------------
[Name of Holder]
By: /s/ Ross Jaffe
---------------------------------
Title: General Partner
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
S.R. ONE, LIMITED
------------------------------------
[Name of Holder]
By: /s/ Donald F. Parman
---------------------------------
Title: Vice President
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
STEPHEN KANDEL
------------------------------------
[Name of Holder]
By: /s/ Stephen Kandel
---------------------------------
Title:
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
TODD SCHMIDT
------------------------------------
[Name of Holder]
By: /s/ Todd Schmidt
--------------------------------
Title:
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
VICENTE ANIDO, JR.
------------------------------------
[Name of Holder]
By: /s/ Vicente Anido, Jr.
---------------------------------
Title: President & CEO
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
JOHN T. CHAMBERS
------------------------------------
[Name of Holder]
By: /s/ John T. Chambers
---------------------------------
Title: Anido Designee
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
THE RUFUS L. MCCRACKEN TRUST,
DATED 6/21/91
------------------------------------
[Name of Holder]
By: /s/ Lee McCracken
---------------------------------
Title: Trustee
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
Steven Teig
------------------------------------
[Name of Holder]
By: /s/ Steven Teig
---------------------------------
Title:
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above written.
COMBICHEM, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
FAYE HUNTER RUSSELL TRUST
U/A DTD 7/11/88
------------------------------------
[Name of Holder]
By: /s/ Faye Hunter Russell
---------------------------------
Title: Trustee
------------------------------
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
<PAGE> 58
EXHIBIT A
INVESTORS
Forward Ventures II, L.P.
Sequoia Capital VI
Sequoia Technology Partners VI
Sequoia XXIV
Sequoia 1995
Lynn H. Caporale
Sydney Brenner
Sprout Capital VII, L.P.
DLJ Capital Corporation
C. V. Sofinnova Ventures Partners III
Singapore Bio-Innovations Pte, Ltd
PaineWebber Incorporated as Custodian of the Michael Grossman Rollover IRA
Steven M. Lash First Interstate Bank as Trustee for SK International Securities
Corp.
401(k)PS em Stephen J. Kandel
Byron T. Franzen
IRA FBO Byron T. Franzen
The M.L. Lawrence Trust
Farley Inc.
Sorrento Ventures II, L.P.
Sorrento Growth Partners I, L.P.
Comdisco, Inc.
Brinson Venture Capital Fund III, L.P. (The First National Bank of Chicago as
Custodian to the Brinson Venture Capital Fund III, L.P.)
Brinson Trust Company as Trustee of the Brinson MAP Venture Capital Fund III
(The First National Bank of Chicago as Custodian to the Brinson Trust Company
as Trustee of the Brinson MAP Venture Capital Fund III)
Japan Associated Finance Co., Ltd.
JAFCO G-5 Investment Enterprise Partnership
JAFCO R-1(A) Investment Enterprise Partnership
JAFCO R-1(B) Investment Enterprise Partnership
JAFCO R-2 Investment Enterprise Partnership
Brentwood Associates VII, L.P.
S.R. One Limited
Stephen J. Kandel
Todd Schmidt
Vicente Anido
John T. Chambers
The Rufus L. McCracken Trust, dated 6/21/91
Steve Teig
Faye Hunter Russell Trust U/A Dtd 7/11/88
Exhibit A
<PAGE> 1
EXHIBIT 10.10
SERIES J PREFERRED STOCK PURCHASE AGREEMENT
(122,500 Shares of Series J Preferred Stock)
By and Between
CombiChem, Inc.,
a California corporation
and
STEVEN TEIG
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
1. Sale of Preferred Shares...................................................................... 1
2. Closing....................................................................................... 1
3. Representations and Warranties of the Company................................................. 1
(a) Organization and Standing; Articles and Bylaws....................................... 2
(b) Authorization........................................................................ 2
(c) Validity of the Shares............................................................... 2
4. Representations and Warranties of the Purchaser............................................... 2
(a) Authorization........................................................................ 2
(b) Investment Intent.................................................................... 2
(c) Reliance Upon the Purchaser's Representations........................................ 2
(d) Restricted Securities................................................................ 3
(e) Receipt of Information............................................................... 3
(f) Investment Experience................................................................ 3
(g) Limitations on Disposition........................................................... 3
(h) Public Sale.......................................................................... 4
(i) Legends.............................................................................. 4
5. Company Right Of First Refusal................................................................ 4
6. Market Stand-off Agreement.................................................................... 4
7. Miscellaneous................................................................................. 5
(a) Further Instruments and Actions...................................................... 5
(b) Notices.............................................................................. 5
(c) Governing Law........................................................................ 5
(d) Successors and Assigns............................................................... 5
(e) Amendments and Waivers............................................................... 5
(f) Counsel to the Company............................................................... 5
</TABLE>
EXHIBITS
Exhibit A -- Consent of Spouse
(i)
<PAGE> 3
PREFERRED STOCK PURCHASE AGREEMENT
(122,500 Shares of Series J Preferred Stock)
THIS SERIES J PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made as
of June 10, 1997 by and between CombiChem, Inc., a California corporation (the
"Company"), and Steven Teig (the "Purchaser," which term includes his heirs,
executors, guardians, successors and assigns).
WHEREAS, the Company and the Purchaser are parties to that certain Stock
Option Agreement dated December 1, 1995 (the "Option Agreement") pursuant to
which the Company granted Purchaser an option to purchase up to 245,000 shares
of the Company's Series J Preferred Stock at an option price of $0.10 per share;
and
WHEREAS, the Purchaser desires to purchase shares of the Company's Series
J Preferred Stock pursuant to the Option Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Sale of Preferred Shares. Subject to the terms and conditions of
this Agreement, the Purchaser hereby purchases, and the Company hereby sells to
the Purchaser, One Hundred Twenty Two Thousand Five Hundred shares of the
Company's Series J Preferred Stock (the "Shares") at a price of ten cents
($0.10) per share, for an aggregate sum of Twelve Thousand Two Hundred Fifty
($12,250) (the "Purchase Price").
2. Closing. The purchase and sale of the Shares shall occur at the
offices of the Company, on that date the Purchaser has conditionally delivered
to the Company (i) Purchaser's signature on the Agreement's signature page
offering to purchase the Shares, (ii) an executed Consent of Spouse attached
hereto as Exhibit A and incorporated herein by reference and (iii) consideration
equal to the Purchase Price in the form of cash (requiring a receipt signed by
Company officer), or check and an authorized officer of the Company, after
having confirmed that Purchaser has complied with the conditions precedent to
execution, executes this Agreement on behalf of the Company (the "Closing").
Within ten business days of the Closing, the Company shall deliver to the
Purchaser a share certificate dated the date of the Closing, registered in the
name the Purchaser designates, representing the Shares purchased by the
Purchaser pursuant to this Agreement.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows:
(a) Organization and Standing; Articles and Bylaws. The Company is
a corporation duly organized, validly existing, and in good standing under the
laws of the
<PAGE> 4
State of California, and has all requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted.
(b) Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
the Company's obligations under this Agreement and for the authorization,
issuance, sale and delivery of the Shares and the common stock issuable upon
conversion thereof (the "Underlying Common Shares") has been taken or will be
taken prior to the Closing. This Agreement, when executed and delivered by the
Company and the Purchaser shall constitute a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors.
(c) Validity of the Shares. The Shares and the Underlying Common
Shares will be validly issued, fully paid and nonassessable.
4. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Authorization. The Purchaser has the requisite legal power and
authority to enter into this Agreement and that this Agreement when executed
shall constitute a valid and legally binding obligation of the Purchaser.
(b) Investment Intent. This Agreement is made with the Purchaser
in reliance upon his representation to the Company, which by his execution
hereof he confirms, that the Shares have been acquired with his own funds for
investment for an indefinite period for his own account, not as a nominee or
agent, and not with a view to the sale or distribution of any part thereof, and
that he has no present intention of selling, granting participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that he does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participations, to such
person or to any third person, with respect to any of the Shares.
(c) Reliance Upon the Purchaser's Representations. The Purchaser
understands (i) that the Shares are not registered under the Securities Act or
qualified under the California Corporate Securities Law of 1968, as amended (the
"Law"), and (ii) that the Shares are being issued to the Purchaser on the ground
that the sale provided for in this Agreement and the issuance of securities
hereunder is exempt from registration under the Securities Act pursuant to
Section 4(2) thereof and/or Regulation D promulgated thereunder and the
exemption from qualification provided by Section 25102(f) of the Law, and (iii)
that the Company's reliance on such exemptions is predicated on the Purchaser's
representations set forth herein. The Purchaser realizes that the basis for the
exemptions may not be present if, notwithstanding such representations, the
Purchaser has in mind merely acquiring the Shares for a fixed or determinable
period in the future, or for a market rise, or for sale if the market does not
rise. The Purchaser does not have any such intention. These exemptions only
exempt
-2-
<PAGE> 5
the issuance of the Shares to the Purchaser and not any sale or other
disposition of the Shares or any interest therein by the Purchaser.
(d) Restricted Securities. The Purchaser hereby confirms that the
Purchaser has been informed that the Shares are restricted securities under the
Securities Act and may not be resold or transferred unless the Shares are first
registered under the Federal securities laws or unless an exemption from such
registration is available. In addition, the Purchaser understands that any
resale or transfer must comply with applicable state securities laws.
Accordingly, the Purchaser hereby acknowledges that the Purchaser is prepared to
hold the Shares for an indefinite period, and that the Purchaser is familiar
with the provisions of Rule 144 of the Securities and Exchange Commission issued
under the Securities Act, and is aware that Rule 144 is not presently available
to exempt the sale of the Shares from the registration requirements of the
Securities Act.
(e) Receipt of Information. The Purchaser acknowledges that he has
received all the information he considers necessary or appropriate for deciding
whether to purchase the Shares. The Purchaser further represents that he has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares and the business,
properties, prospects, and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to Purchaser or to which Purchaser had
access.
(f) Investment Experience. In connection with representations made
herein, the Purchaser represents that he has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of his investment, has the ability to bear the economic risks of his
investment and has been furnished with and has had access to all of the
information he considers necessary or appropriate to evaluate the risks and
merits of an investment in the Shares, and has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management.
(g) Limitations on Disposition. The Purchaser agrees that in no
event will he make a disposition of any of the Shares, unless and until (a) he
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (b) he shall have furnished the Company with an
opinion of counsel satisfactory to the Company to the effect that (i) such
disposition will not require registration of such Shares under the Securities
Act, or (ii) that appropriate action necessary for compliance with the
Securities Act has been taken, or (c) the Company shall have waived, expressly
and in writing, its rights under clauses (a) and (b) of this subparagraph. The
opinion shall also indicate that the disposition is exempt from, in compliance
with, or qualified under all applicable state securities laws.
-3-
<PAGE> 6
(h) Public Sale. The Purchaser agrees not to make, without the
prior written consent of the Company, any public offering or sale of the Shares,
even if permitted to do so pursuant to Rule 144(k) promulgated under the
Securities Act, until the earlier of (i) six months after the date on which the
Company effects its initial registered public offering pursuant to the
Securities Act or (ii) five years after the date of the Closing of this
Agreement.
(i) Legends. All certificates representing any shares of the
Company subject to the provisions of this Agreement shall have endorsed thereon
customary legends regarding:
(1) Restrictions on transfer under the Federal Securities
Act of 1933.
(2) Market Stand-off Agreement pursuant to Section 6 hereof.
(3) Right of First Refusal upon any resale of the Shares,
pursuant to the Company's Bylaws and Section 5 hereof.
(4) Any legend required by state securities laws.
5. Company Right Of First Refusal. Any resale of the Shares shall be
subject to the Right of First Refusal provisions set forth in Article VI of the
Company's Bylaws. This right terminates upon the Company completing its initial
public offering of stock.
6. Market Stand-off Agreement.
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the Securities Act, including the Company's initial public offering,
the Purchaser shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for value
or otherwise agree to engage in any of the foregoing transactions with respect
to the Shares without the prior written consent of the Company or its
underwriters. Such limitations shall be in effect for one hundred eighty (180)
days from and after the effective date of such registration statement or such
longer time as may be required by the Company's underwriters.
(b) In the event any stock dividend, stock split, recapitalization
or other change affecting the Company's outstanding common shares is effected
without receipt of consideration, then any new, substituted or additional
securities distributed with respect to the Shares shall be immediately subject
to the provisions of this Section 6 to the same extent the Shares are at such
time covered by such provisions.
(c) In order to enforce the limitations of this Section 6, the
Company may impose stop-transfer instructions with respect to the Shares until
the end of the applicable stand-off period.
-4-
<PAGE> 7
(d) The obligation in this Section 6 shall not apply to a
registration relating solely to employee benefit plan shares or to a Rule 145
transaction registered on Form S-4.
7. Miscellaneous.
(a) Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
(b) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at his
address hereinafter shown below his signature or at such other address as such
party may designate by advance written notice to the other party hereto.
(c) Governing Law. This Agreement has been negotiated, executed
and delivered in the State of California. The parties hereto agree that all
questions pertaining to the validity and interpretation of this Agreement shall
be determined in accordance with the laws of the State of California.
(d) Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon the Purchaser, his heirs, executors,
administrators, guardians, successors and assigns.
(e) Amendments and Waivers. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all previous understandings, written or oral. This Agreement may only
be amended with the written consent of the parties hereto, or the successors or
assigns of the foregoing, and no oral waiver or amendment shall be effective
under any circumstances whatsoever.
(f) Counsel to the Company. The Purchaser acknowledges and agrees
that this Agreement has been prepared by Brobeck, Phleger & Harrison, counsel to
the Company, which counsel has represented the interests of the Company and not
those of the Purchaser with respect to the transactions documented by this
Agreement. The Purchaser further acknowledges and agrees that the Purchaser has
been provided the opportunity and encouraged to consult with counsel of the
Purchaser's own choosing with respect to this Agreement. The Purchaser certifies
and acknowledges that the Purchaser has carefully read all of the provisions of
this Agreement and that the Purchaser fully understands and shall fully and
faithfully comply with such provisions.
-5-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY
COMBICHEM, INC., a California corporation
By: /s/ Vicente Anido
-------------------------------------
Vicente Anido, President and CEO
Address: CombiChem, Inc.
9050 Camino Santa Fe
San Diego, CA 92121
PURCHASER
/s/ Steven Teig
-----------------------------------------
Address: 904 Ramona Street
-----------------------------------------
Palo Alto, CA 94301
-----------------------------------------
-----------------------------------------
[SIGNATURE PAGE TO
SERIES J PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE> 9
EXHIBIT A
CONSENT OF SPOUSE
I,___________________________________________________, spouse
of_____________________________________, have read and approve the foregoing
Agreement. I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws of the
State of California or similar laws relating to marital property in effect in
the state of our residence as of the date of the signing of the foregoing
Agreement.
Dated: ______________, 1995
-----------------------------------------
(Signature)
________ I hereby represent that I do not currently have a spouse.
-----------------------------------------
(Printed Name)
A-1
<PAGE> 1
EXHIBIT 10.11
SERIES J PREFERRED STOCK PURCHASE AGREEMENT
(70,000 Shares of Series J Preferred Stock)
By and Between
CombiChem, Inc.,
a California corporation
and
Jonathon Greene
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Sale of Preferred Shares...................................................................... 1
2. Closing....................................................................................... 1
3. Representations and Warranties of the Company................................................. 1
(a) Organization and Standing; Articles and Bylaws....................................... 1
(b) Authorization........................................................................ 2
(c) Validity of the Shares............................................................... 2
4. Representations and Warranties of the Purchaser............................................... 2
(a) Authorization........................................................................ 2
(b) Investment Intent.................................................................... 2
(c) Reliance Upon the Purchaser's Representations........................................ 2
(d) Restricted Securities................................................................ 3
(e) Receipt of Information............................................................... 3
(f) Investment Experience................................................................ 3
(g) Limitations on Disposition........................................................... 3
(h) Public Sale.......................................................................... 4
(i) Legends.............................................................................. 4
5. Company Right Of First Refusal................................................................ 4
6. Market Stand-off Agreement.................................................................... 4
7. Miscellaneous................................................................................. 5
(a) Further Instruments and Actions...................................................... 5
(b) Notices.............................................................................. 5
(c) Governing Law........................................................................ 5
(d) Successors and Assigns............................................................... 5
(e) Amendments and Waivers............................................................... 5
(f) Counsel to the Company............................................................... 5
</TABLE>
EXHIBITS
Exhibit A -- Consent of Spouse
(i)
<PAGE> 3
PREFERRED STOCK PURCHASE AGREEMENT
(70,000 Shares of Series J Preferred Stock)
THIS SERIES J PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made as
of June 11, 1997 by and between CombiChem, Inc., a California corporation (the
"Company"), and Jonathon Greene (the "Purchaser," which term includes his heirs,
executors, guardians, successors and assigns).
WHEREAS, the Company and the Purchaser are parties to that certain Stock
Option Agreement dated December 1, 1995 (the "Option Agreement") pursuant to
which the Company granted Purchaser an option to purchase up to 140,000 shares
of the Company's Series J Preferred Stock at an option price of $0.10 per share;
and
WHEREAS, the Purchaser desires to purchase shares of the Company's Series
J Preferred Stock pursuant to the Option Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Sale of Preferred Shares. Subject to the terms and conditions of
this Agreement, the Purchaser hereby purchases, and the Company hereby sells to
the Purchaser, Seventy Thousand shares of the Company's Series J Preferred Stock
(the "Shares") at a price of ten cents ($0.10) per share, for an aggregate sum
of Seven Thousand ($7,000) (the "Purchase Price").
2. Closing. The purchase and sale of the Shares shall occur at the
offices of the Company, on that date the Purchaser has conditionally delivered
to the Company (i) Purchaser's signature on the Agreement's signature page
offering to purchase the Shares, (ii) an executed Consent of Spouse attached
hereto as Exhibit A and incorporated herein by reference and (iii) consideration
equal to the Purchase Price in the form of cash (requiring a receipt signed by
Company officer), or check and an authorized officer of the Company, after
having confirmed that Purchaser has complied with the conditions precedent to
execution, executes this Agreement on behalf of the Company (the "Closing").
Within ten business days of the Closing, the Company shall deliver to the
Purchaser a share certificate dated the date of the Closing, registered in the
name the Purchaser designates, representing the Shares purchased by the
Purchaser pursuant to this Agreement.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows:
(a) Organization and Standing; Articles and Bylaws. The Company is
a corporation duly organized, validly existing, and in good standing under the
laws of the
<PAGE> 4
State of California, and has all requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted.
(b) Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
the Company's obligations under this Agreement and for the authorization,
issuance, sale and delivery of the Shares and the common stock issuable upon
conversion thereof (the "Underlying Common Shares") has been taken or will be
taken prior to the Closing. This Agreement, when executed and delivered by the
Company and the Purchaser shall constitute a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors.
(c) Validity of the Shares. The Shares and the Underlying Common
Shares will be validly issued, fully paid and nonassessable.
4. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Authorization. The Purchaser has the requisite legal power and
authority to enter into this Agreement and that this Agreement when executed
shall constitute a valid and legally binding obligation of the Purchaser.
(b) Investment Intent. This Agreement is made with the Purchaser
in reliance upon his representation to the Company, which by his execution
hereof he confirms, that the Shares have been acquired with his own funds for
investment for an indefinite period for his own account, not as a nominee or
agent, and not with a view to the sale or distribution of any part thereof, and
that he has no present intention of selling, granting participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that he does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participations, to such
person or to any third person, with respect to any of the Shares.
(c) Reliance Upon the Purchaser's Representations. The Purchaser
understands (i) that the Shares are not registered under the Securities Act or
qualified under the California Corporate Securities Law of 1968, as amended (the
"Law"), and (ii) that the Shares are being issued to the Purchaser on the ground
that the sale provided for in this Agreement and the issuance of securities
hereunder is exempt from registration under the Securities Act pursuant to
Section 4(2) thereof and/or Regulation D promulgated thereunder and the
exemption from qualification provided by Section 25102(f) of the Law, and (iii)
that the Company's reliance on such exemptions is predicated on the Purchaser's
representations set forth herein. The Purchaser realizes that the basis for the
exemptions may not be present if, notwithstanding such representations, the
Purchaser has in mind merely acquiring the Shares for a fixed or determinable
period in the future, or for a market rise, or for sale if the market does not
rise. The Purchaser does not have any such intention. These exemptions only
exempt
-2-
<PAGE> 5
the issuance of the Shares to the Purchaser and not any sale or other
disposition of the Shares or any interest therein by the Purchaser.
(d) Restricted Securities. The Purchaser hereby confirms that the
Purchaser has been informed that the Shares are restricted securities under the
Securities Act and may not be resold or transferred unless the Shares are first
registered under the Federal securities laws or unless an exemption from such
registration is available. In addition, the Purchaser understands that any
resale or transfer must comply with applicable state securities laws.
Accordingly, the Purchaser hereby acknowledges that the Purchaser is prepared to
hold the Shares for an indefinite period, and that the Purchaser is familiar
with the provisions of Rule 144 of the Securities and Exchange Commission issued
under the Securities Act, and is aware that Rule 144 is not presently available
to exempt the sale of the Shares from the registration requirements of the
Securities Act.
(e) Receipt of Information. The Purchaser acknowledges that he has
received all the information he considers necessary or appropriate for deciding
whether to purchase the Shares. The Purchaser further represents that he has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares and the business,
properties, prospects, and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to Purchaser or to which Purchaser had
access.
(f) Investment Experience. In connection with representations made
herein, the Purchaser represents that he has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of his investment, has the ability to bear the economic risks of his
investment and has been furnished with and has had access to all of the
information he considers necessary or appropriate to evaluate the risks and
merits of an investment in the Shares, and has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management.
(g) Limitations on Disposition. The Purchaser agrees that in no
event will he make a disposition of any of the Shares, unless and until (a) he
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (b) he shall have furnished the Company with an
opinion of counsel satisfactory to the Company to the effect that (i) such
disposition will not require registration of such Shares under the Securities
Act, or (ii) that appropriate action necessary for compliance with the
Securities Act has been taken, or (c) the Company shall have waived, expressly
and in writing, its rights under clauses (a) and (b) of this subparagraph. The
opinion shall also indicate that the disposition is exempt from, in compliance
with, or qualified under all applicable state securities laws.
-3-
<PAGE> 6
(h) Public Sale. The Purchaser agrees not to make, without the
prior written consent of the Company, any public offering or sale of the Shares,
even if permitted to do so pursuant to Rule 144(k) promulgated under the
Securities Act, until the earlier of (i) six months after the date on which the
Company effects its initial registered public offering pursuant to the
Securities Act or (ii) five years after the date of the Closing of this
Agreement.
(i) Legends. All certificates representing any shares of the
Company subject to the provisions of this Agreement shall have endorsed thereon
customary legends regarding:
(1) Restrictions on transfer under the Federal Securities
Act of 1933.
(2) Market Stand-off Agreement pursuant to Section 6 hereof.
(3) Right of First Refusal upon any resale of the Shares,
pursuant to the Company's Bylaws and Section 5 hereof.
(4) Any legend required by state securities laws.
5. Company Right Of First Refusal. Any resale of the Shares shall be
subject to the Right of First Refusal provisions set forth in Article VI of the
Company's Bylaws. This right terminates upon the Company completing its initial
public offering of stock.
6. Market Stand-off Agreement.
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the Securities Act, including the Company's initial public offering,
the Purchaser shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for value
or otherwise agree to engage in any of the foregoing transactions with respect
to the Shares without the prior written consent of the Company or its
underwriters. Such limitations shall be in effect for one hundred eighty (180)
days from and after the effective date of such registration statement or such
longer time as may be required by the Company's underwriters.
(b) In the event any stock dividend, stock split, recapitalization
or other change affecting the Company's outstanding common shares is effected
without receipt of consideration, then any new, substituted or additional
securities distributed with respect to the Shares shall be immediately subject
to the provisions of this Section 6 to the same extent the Shares are at such
time covered by such provisions.
(c) In order to enforce the limitations of this Section 6, the
Company may impose stop-transfer instructions with respect to the Shares until
the end of the applicable stand-off period.
-4-
<PAGE> 7
(d) The obligation in this Section 6 shall not apply to a
registration relating solely to employee benefit plan shares or to a Rule 145
transaction registered on Form S-4.
7. Miscellaneous.
(a) Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
(b) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at his
address hereinafter shown below his signature or at such other address as such
party may designate by advance written notice to the other party hereto.
(c) Governing Law. This Agreement has been negotiated, executed
and delivered in the State of California. The parties hereto agree that all
questions pertaining to the validity and interpretation of this Agreement shall
be determined in accordance with the laws of the State of California.
(d) Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon the Purchaser, his heirs, executors,
administrators, guardians, successors and assigns.
(e) Amendments and Waivers. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all previous understandings, written or oral. This Agreement may only
be amended with the written consent of the parties hereto, or the successors or
assigns of the foregoing, and no oral waiver or amendment shall be effective
under any circumstances whatsoever.
(f) Counsel to the Company. The Purchaser acknowledges and agrees
that this Agreement has been prepared by Brobeck, Phleger & Harrison, counsel to
the Company, which counsel has represented the interests of the Company and not
those of the Purchaser with respect to the transactions documented by this
Agreement. The Purchaser further acknowledges and agrees that the Purchaser has
been provided the opportunity and encouraged to consult with counsel of the
Purchaser's own choosing with respect to this Agreement. The Purchaser certifies
and acknowledges that the Purchaser has carefully read all of the provisions of
this Agreement and that the Purchaser fully understands and shall fully and
faithfully comply with such provisions.
-5-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY
COMBICHEM, INC., a California corporation
By: /s/ Vicente Anido
-------------------------------------
Vicente Anido, President and CEO
Address: 9050 Camino Santa Fe
San Diego, CA 92121
PURCHASER
/s/ Jonathon Greene
-----------------------------------------
Jonathon Greene
Address: 1481 Pitman Ave
-----------------------------------------
Palo Alto, CA 94301
-----------------------------------------
-----------------------------------------
[SIGNATURE PAGE TO
SERIES J PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE> 9
EXHIBIT A
CONSENT OF SPOUSE
I,___________________________________________________, spouse
of_____________________________________, have read and approve the foregoing
Agreement. I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws of the
State of California or similar laws relating to marital property in effect in
the state of our residence as of the date of the signing of the foregoing
Agreement.
Dated: ______________, 1995
-----------------------------------------
(Signature)
________ I hereby represent that I do not currently have a spouse.
-----------------------------------------
(Printed Name)
A-1
<PAGE> 1
EXHIBIT 10.12
SERIES J PREFERRED STOCK PURCHASE AGREEMENT
(40,000 Shares of Series J Preferred Stock)
By and Between
CombiChem, Inc.,
a California corporation
and
ANDREW SMELLIE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Sale of Preferred Shares...................................................................... 1
2. Closing....................................................................................... 1
3. Representations and Warranties of the Company................................................. 1
(a) Organization and Standing; Articles and Bylaws....................................... 2
(b) Authorization........................................................................ 2
(c) Validity of the Shares............................................................... 2
4. Representations and Warranties of the Purchaser............................................... 2
(a) Authorization........................................................................ 2
(b) Investment Intent.................................................................... 2
(c) Reliance Upon the Purchaser's Representations........................................ 2
(d) Restricted Securities................................................................ 3
(e) Receipt of Information............................................................... 3
(f) Investment Experience................................................................ 3
(g) Limitations on Disposition........................................................... 3
(h) Public Sale.......................................................................... 4
(i) Legends.............................................................................. 4
5. Company Right Of First Refusal................................................................ 4
6. Market Stand-off Agreement.................................................................... 4
7. Miscellaneous................................................................................. 5
(a) Further Instruments and Actions...................................................... 5
(b) Notices.............................................................................. 5
(c) Governing Law........................................................................ 5
(d) Successors and Assigns............................................................... 5
(e) Amendments and Waivers............................................................... 5
(f) Counsel to the Company............................................................... 5
</TABLE>
EXHIBITS
Exhibit A -- Consent of Spouse
(i)
<PAGE> 3
PREFERRED STOCK PURCHASE AGREEMENT
(40,000 Shares of Series J Preferred Stock)
THIS SERIES J PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made as
of June 11, 1997 by and between CombiChem, Inc., a California corporation (the
"Company"), and Andrew Smellie (the "Purchaser," which term includes his heirs,
executors, guardians, successors and assigns).
WHEREAS, the Company and the Purchaser are parties to that certain Stock
Option Agreement dated December 1, 1995 (the "Option Agreement") pursuant to
which the Company granted Purchaser an option to purchase up to 40,000 shares of
the Company's Series J Preferred Stock at an option price of $0.10 per share;
and
WHEREAS, the Purchaser desires to purchase shares of the Company's Series
J Preferred Stock pursuant to the Option Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Sale of Preferred Shares. Subject to the terms and conditions of
this Agreement, the Purchaser hereby purchases, and the Company hereby sells to
the Purchaser, Forty Thousand shares of the Company's Series J Preferred Stock
(the "Shares") at a price of ten cents ($0.10) per share, for an aggregate sum
of Four Thousand ($4,000) (the "Purchase Price").
2. Closing. The purchase and sale of the Shares shall occur at the
offices of the Company, on that date the Purchaser has conditionally delivered
to the Company (i) Purchaser's signature on the Agreement's signature page
offering to purchase the Shares, (ii) an executed Consent of Spouse attached
hereto as Exhibit A and incorporated herein by reference and (iii) consideration
equal to the Purchase Price in the form of cash (requiring a receipt signed by
Company officer), or check and an authorized officer of the Company, after
having confirmed that Purchaser has complied with the conditions precedent to
execution, executes this Agreement on behalf of the Company (the "Closing").
Within ten business days of the Closing, the Company shall deliver to the
Purchaser a share certificate dated the date of the Closing, registered in the
name the Purchaser designates, representing the Shares purchased by the
Purchaser pursuant to this Agreement.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows:
(a) Organization and Standing; Articles and Bylaws. The Company is
a corporation duly organized, validly existing, and in good standing under the
laws of the
<PAGE> 4
State of California, and has all requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted.
(b) Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
the Company's obligations under this Agreement and for the authorization,
issuance, sale and delivery of the Shares and the common stock issuable upon
conversion thereof (the "Underlying Common Shares") has been taken or will be
taken prior to the Closing. This Agreement, when executed and delivered by the
Company and the Purchaser shall constitute a valid and legally binding
obligation of the Company, enforceable in accordance with its terms, subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors.
(c) Validity of the Shares. The Shares and the Underlying Common
Shares will be validly issued, fully paid and nonassessable.
4. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Authorization. The Purchaser has the requisite legal power and
authority to enter into this Agreement and that this Agreement when executed
shall constitute a valid and legally binding obligation of the Purchaser.
(b) Investment Intent. This Agreement is made with the Purchaser
in reliance upon his representation to the Company, which by his execution
hereof he confirms, that the Shares have been acquired with his own funds for
investment for an indefinite period for his own account, not as a nominee or
agent, and not with a view to the sale or distribution of any part thereof, and
that he has no present intention of selling, granting participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that he does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participations, to such
person or to any third person, with respect to any of the Shares.
(c) Reliance Upon the Purchaser's Representations. The Purchaser
understands (i) that the Shares are not registered under the Securities Act or
qualified under the California Corporate Securities Law of 1968, as amended (the
"Law"), and (ii) that the Shares are being issued to the Purchaser on the ground
that the sale provided for in this Agreement and the issuance of securities
hereunder is exempt from registration under the Securities Act pursuant to
Section 4(2) thereof and/or Regulation D promulgated thereunder and the
exemption from qualification provided by Section 25102(f) of the Law, and (iii)
that the Company's reliance on such exemptions is predicated on the Purchaser's
representations set forth herein. The Purchaser realizes that the basis for the
exemptions may not be present if, notwithstanding such representations, the
Purchaser has in mind merely acquiring the Shares for a fixed or determinable
period in the future, or for a market rise, or for sale if the market does not
rise. The Purchaser does not have any such intention. These exemptions only
exempt
-2-
<PAGE> 5
the issuance of the Shares to the Purchaser and not any sale or other
disposition of the Shares or any interest therein by the Purchaser.
(d) Restricted Securities. The Purchaser hereby confirms that the
Purchaser has been informed that the Shares are restricted securities under the
Securities Act and may not be resold or transferred unless the Shares are first
registered under the Federal securities laws or unless an exemption from such
registration is available. In addition, the Purchaser understands that any
resale or transfer must comply with applicable state securities laws.
Accordingly, the Purchaser hereby acknowledges that the Purchaser is prepared to
hold the Shares for an indefinite period, and that the Purchaser is familiar
with the provisions of Rule 144 of the Securities and Exchange Commission issued
under the Securities Act, and is aware that Rule 144 is not presently available
to exempt the sale of the Shares from the registration requirements of the
Securities Act.
(e) Receipt of Information. The Purchaser acknowledges that he has
received all the information he considers necessary or appropriate for deciding
whether to purchase the Shares. The Purchaser further represents that he has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Shares and the business,
properties, prospects, and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to Purchaser or to which Purchaser had
access.
(f) Investment Experience. In connection with representations made
herein, the Purchaser represents that he has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of his investment, has the ability to bear the economic risks of his
investment and has been furnished with and has had access to all of the
information he considers necessary or appropriate to evaluate the risks and
merits of an investment in the Shares, and has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management.
(g) Limitations on Disposition. The Purchaser agrees that in no
event will he make a disposition of any of the Shares, unless and until (a) he
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (b) he shall have furnished the Company with an
opinion of counsel satisfactory to the Company to the effect that (i) such
disposition will not require registration of such Shares under the Securities
Act, or (ii) that appropriate action necessary for compliance with the
Securities Act has been taken, or (c) the Company shall have waived, expressly
and in writing, its rights under clauses (a) and (b) of this subparagraph. The
opinion shall also indicate that the disposition is exempt from, in compliance
with, or qualified under all applicable state securities laws.
-3-
<PAGE> 6
(h) Public Sale. The Purchaser agrees not to make, without the
prior written consent of the Company, any public offering or sale of the Shares,
even if permitted to do so pursuant to Rule 144(k) promulgated under the
Securities Act, until the earlier of (i) six months after the date on which the
Company effects its initial registered public offering pursuant to the
Securities Act or (ii) five years after the date of the Closing of this
Agreement.
(i) Legends. All certificates representing any shares of the
Company subject to the provisions of this Agreement shall have endorsed thereon
customary legends regarding:
(1) Restrictions on transfer under the Federal Securities
Act of 1933.
(2) Market Stand-off Agreement pursuant to Section 6 hereof.
(3) Right of First Refusal upon any resale of the Shares,
pursuant to the Company's Bylaws and Section 5 hereof.
(4) Any legend required by state securities laws.
5. Company Right Of First Refusal. Any resale of the Shares shall be
subject to the Right of First Refusal provisions set forth in Article VI of the
Company's Bylaws. This right terminates upon the Company completing its initial
public offering of stock.
6. Market Stand-off Agreement.
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the Securities Act, including the Company's initial public offering,
the Purchaser shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for value
or otherwise agree to engage in any of the foregoing transactions with respect
to the Shares without the prior written consent of the Company or its
underwriters. Such limitations shall be in effect for one hundred eighty (180)
days from and after the effective date of such registration statement or such
longer time as may be required by the Company's underwriters.
(b) In the event any stock dividend, stock split, recapitalization
or other change affecting the Company's outstanding common shares is effected
without receipt of consideration, then any new, substituted or additional
securities distributed with respect to the Shares shall be immediately subject
to the provisions of this Section 6 to the same extent the Shares are at such
time covered by such provisions.
(c) In order to enforce the limitations of this Section 6, the
Company may impose stop-transfer instructions with respect to the Shares until
the end of the applicable stand-off period.
-4-
<PAGE> 7
(d) The obligation in this Section 6 shall not apply to a
registration relating solely to employee benefit plan shares or to a Rule 145
transaction registered on Form S-4.
7. Miscellaneous.
(a) Further Instruments and Actions. The parties agree to execute
such further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.
(b) Notices. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified mail
with postage and fees prepaid, addressed to the other party hereto at his
address hereinafter shown below his signature or at such other address as such
party may designate by advance written notice to the other party hereto.
(c) Governing Law. This Agreement has been negotiated, executed
and delivered in the State of California. The parties hereto agree that all
questions pertaining to the validity and interpretation of this Agreement shall
be determined in accordance with the laws of the State of California.
(d) Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of the
successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon the Purchaser, his heirs, executors,
administrators, guardians, successors and assigns.
(e) Amendments and Waivers. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all previous understandings, written or oral. This Agreement may only
be amended with the written consent of the parties hereto, or the successors or
assigns of the foregoing, and no oral waiver or amendment shall be effective
under any circumstances whatsoever.
(f) Counsel to the Company. The Purchaser acknowledges and agrees
that this Agreement has been prepared by Brobeck, Phleger & Harrison, counsel to
the Company, which counsel has represented the interests of the Company and not
those of the Purchaser with respect to the transactions documented by this
Agreement. The Purchaser further acknowledges and agrees that the Purchaser has
been provided the opportunity and encouraged to consult with counsel of the
Purchaser's own choosing with respect to this Agreement. The Purchaser certifies
and acknowledges that the Purchaser has carefully read all of the provisions of
this Agreement and that the Purchaser fully understands and shall fully and
faithfully comply with such provisions.
-5-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY
COMBICHEM, INC., a California corporation
By: /s/ Vicente Anido
-------------------------------------
Vicente Anido, President and CEO
Address: 9050 Camino Santa Fe
San Diego, CA 92121
PURCHASER
/s/ Andrew Smellie
-----------------------------------------
Address: 904 Ramona Street
-----------------------------------------
Palo Alto, CA 94301
-----------------------------------------
-----------------------------------------
[SIGNATURE PAGE TO
SERIES J PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE> 9
EXHIBIT A
CONSENT OF SPOUSE
I,_________________________________________________, spouse
of_____________________________________, have read and approve the foregoing
Agreement. I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws of the
State of California or similar laws relating to marital property in effect in
the state of our residence as of the date of the signing of the foregoing
Agreement.
Dated: ______________, 1995
-----------------------------------------
(Signature)
________ I hereby represent that I do not currently have a spouse.
-----------------------------------------
(Printed Name)
A-1
<PAGE> 1
EXHIBIT 10.13
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series Z Preferred Stock of
COMBICHEM, INC.
Dated as of December 20, 1994 (the "Effective Date")
WHEREAS, COMBICHEM, INC., a California corporation (the "Company") has
entered into a Master Lease Agreement dated as of November 16, 1994, Equipment
Schedule No. VL-1, and related Schedules (the "Leases") with COMDISCO, INC., a
Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, that number of fully paid and
assessable shares of the Company's Series Z Preferred Stock ("Preferred Stock")
equal to:
[(A x B) / C] x [1 - ((C - $.50) / C)]
A = 7.5% Warrant Coverage Percentage
B = $450,000 Committed Lease Financing Credit Line
C = $0.75
[(.075 x $450,000) / $0.75 x [$1.00 - (($0.75 - $0.50) / $0.75)]
= 45,000 x [1 - .67] = 30,000
<PAGE> 2
The exercise price of the shares of the Series Z Preferred Stock issued
hereunder shall be $0.50 (the "Exercise Price").
The number and purchase price of such shares are subject to adjustment as
provided for in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever occurs earlier.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
Notice of Exercise indicating the number of shares which remain subject to
future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
x = Y(A-B)
------
A
Where: x = the number of shares of Preferred Stock to be issued to the
Warrantholder.
y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Common.
B = the Exercise Price.
-2-
<PAGE> 3
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with respect to the offering;
(ii) if this warrant is exercised after, and not in connection with the
Company's initial public offering, the Closing Price on the date of Notice
of Exercise.
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving
party, in which case the fair market value of Common Stock shall be deemed
to be the value received by the holders of the Company's Preferred Stock on
a common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
Authorization and Reservation of Shares. During the term of this Warrant
Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
5. REGISTRATION RIGHTS
(a) Registration or Listing. The Company shall not have any obligation to
register any of the shares of Preferred Stock at any time. If, at any time after
the Company's Initial Public Offering, the Company proposes to register its
shares of common stock under the Securities Act of 1933, as amended (the
"Securities Act") (other than a registration effected solely to implement an
employee benefit plan, a transaction to which Rule 145 of the
-3-
<PAGE> 4
Securities and Exchange Commission, or successor entity, is applicable or any
other form or type of registration in which registrable securities cannot be
included), the Company shall give written notice to the Warrantholder and
permitted assigns of such intention to register shares of common stock. If such
registration is proposed to be on a form which permits inclusion of shares of
common stock issued upon conversion of the preferred stock issued hereunder (the
"Registrable Securities") then held by Warrantholder, upon the written request
of the Warrantholder delivered to the Secretary of the Company within twenty
(20) days after transmittal of notice by the Company to the Warrantholder, the
Company shall, subject to the limits contained in this section and provided
warrantholder accepts the terms of such underwriting between the Company and its
underwriters, use its best efforts to cause all such Registrable Securities to
be registered under the Securities Act and qualified for sale under certain
state blue sky laws; provided, however, that if the underwriter managing such
registration delivers written notification to the Company that market or
economic conditions limit the amount of securities which may reasonably be
expected to be sold, the underwriter may limit or exclude any or all Registrable
Securities from the registration and underwriting. The Company shall so advise
the Warrantholder of any such limit or exclusion. The number of shares that are
entitled to be included in the registration shall be allocated as follows: (i)
to the Company for all securities being sold for its own account; (ii) to all
holders of registrable securities with contractual registration rights for which
registration is requested; and finally (iii) to shareholders without contractual
registration rights. The number of shares of registrable securities that are
included in such registration shall be allocated among all holders with
contractual registration rights in proportion to the amount of registrable
securities initially offered for registration by each holder.
If any person does not agree to the terms of any such underwriting, said
person shall be excluded from the underwriting upon written notice from the
Company or the underwriter. If any shares are excluded from the registration and
if the number of shares of registrable securities to be included in such
registration was previously reduced as a result of marketing factors, the
Company shall then offer to all persons who have retained the right to include
additional securities in the registration, the right to include additional
securities in an aggregate amount equal to the number of shares excluded, with
such shares to be a located among the persons requesting additional inclusion on
a pro rata basis.
(b) Termination of Registration Rights. The right of Warrantholder to
request registration or inclusion in any registration pursuant to Section 4(b)
shall terminate on the closing of the Company's Initial Public Offering,
provided that all shares of Registrable Securities held or entitled to be held
upon converts on by Warrantholder may immediately be sold under Rule 144 during
any 90-day period, or on such date after the closing of the Company's Initial
Public Offering as all shares of "Registrable Securities" held or entitled to be
held upon conversion by Warrantholder may immediately be sold under Rule 144
during any 90-day period. "Registrable Securities," as used herein, shall mean
the shares of common stock issued or issuable upon conversion of the shares of
Series Z Preferred Stock issued upon exercise of this Warrant.
-4-
<PAGE> 5
(c) Registration Rights Agreement. In the event the Company so requests,
Warrantholder shall become a signatory to and be bound by the Company's Amended
and Restated Stock Registration Rights Agreement dated November 1, 1994, as
amended provided, however, that Warrantholder shall not have any registration
demand rights set forth in such agreement.
6. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
7. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting,
dividend or other rights as a shareholder of the Company prior to the exercise
of the Warrant.
8. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or federal securities laws. The
Company has made available to the warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended, and minutes of all Board of
Directors (including all committees of the Board of Directors, if any) and
Shareholder meetings from August 9, 1994 through November 18, 1994. The issuance
of certificates for shares of Preferred Stock upon exercise of the Warrant
Agreement shall be made without charge to the Warrantholder for any issuance tax
in respect thereof, or other cost incurred by the Company in connection with
such exercise and the related issuance of shares of Preferred Stock. The Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved and the issuance and delivery of any certificate in a name
other than that of the warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been
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<PAGE> 6
duly authorized by all necessary corporate action on the part of the Company,
and the Leases and this Warrant Agreement are not inconsistent with the
Company's Charter or Bylaws, do not contravene any law or governmental rule,
regulation or order applicable to it, do not and will not contravene any
provision of, or constitute a default under, any indenture, mortgage, contract
or other instrument to which it is a party or by which it is bound, and the
Leases and this Warrant Agreement constitute legal, valid and binding agreements
of the Company, enforceable in accordance with their respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any state,
federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and Section 25102(f) of the California Corporate Securities
Law, which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all federal and state securities laws. In addition:
i. The authorized capital stock of the Company consists of 30,000,000
shares of no par value common Stock and 10,000,000 shares of no par value
preferred stock. The first series of preferred stock is comprised of 1,000,000
shares designated "Series A Preferred Stock." The second series of preferred
stock is comprised of 1,500,000 shares designated "Series Z Preferred Stock."
The third series of preferred stock is comprised of 2,226,667 shares designated
"Series B Preferred Stock." There are currently issued and outstanding 1,732,500
shares of the Company's Common Stock, 1,000,000 shares of Series A Preferred
Stock, 200,000 shares of Series Z Preferred Stock and 2,200,000 shares of Series
B Preferred Stock. All issued and outstanding shares of the Company's capital
stock have been duly authorized and validly issued by the Company in compliance
with applicable federal and state securities laws, and are fully paid and
nonassessable.
ii. The Company has reserved no shares of Common Stock for issuance
under its Stock Option Plan, under which no options are outstanding. Other than
400,000 shares of Series Z Preferred Stock reserved for issuance to The Scripps
Research Institute and 26,667 shares of Series B Preferred Stock offered for
sale to Lynn H. Caporale, there are no other options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of the Company's capital stock or
other securities of the Company.
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<PAGE> 7
iii. Holders of Series A and B Preferred Stock have rights to purchase
additional issuances of stock by the Company to maintain their pro rata
ownership of the Company. No other shareholder of the Company has preemptive
rights to purchase new issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance policies,
with extended coverage, insuring the Company and its property and business
against such losses and risks, and in such amounts, as are customary for
corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement, that certain Amended and Restated Stock Registration Rights
Agreement dated November 1, 1994, as amended, and that certain Series Z Stock
Registration Rights Agreement dated October 12, 1994, the Company is not,
pursuant to the terms of any other agreement currently in existence, under any
obligation to register under the 1933 Act any of its presently outstanding
securities or any of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the California
Corporate Securities Law, in reliance upon Section 25102(f) thereof.
(h) Compliance With Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
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<PAGE> 8
(b) Private Issue. The warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this
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<PAGE> 9
Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the
right to purchase, it may be required to hold such securities for an indefinite
period. The warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
(f) Market Stand-Off Agreement. Warrantholder hereby agrees that, in
connection with any underwritten public offering by the Company of its equity
securities pursuant to an effective registration statement filed under the
Securities Act, including the Company's initial public offering, warrantholder
shall not sell, make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
any securities of the Company held by the Warrantholder without the prior
written consent of the Company and its underwriters. Such limitations shall be
in effect for a period of time as determined by the Company and its managing
underwriter(s) provided that such period of time shall not exceed one hundred
eighty (180) days from and after the effective date of such registration
statement in connection with the Company's initial public offering or ninety
(90) days from and after the effective date of any subsequent underwritten
public offering (the "Market Stand-Off Period"). The limitations of this Section
shall remain in effect for the two-year period immediately following the
effective date of the Company's initial public offering and shall thereafter
terminate and cease to have any force or effect. In order to enforce the
limitations of this Section, the Company may impose stop-transfer instructions
with respect to the securities held by Warrantholder until the end of the Market
Stand-Off Period.
11. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers nor shall any transfer be less than fifty
thousand (50,000) shares. The transfer shall be recorded on the books of the
Company upon receipt by the Company of a notice of transfer in the form attached
hereto as Exhibit II (the "Transfer Notice"), at its principal offices and the
payment to the Company of all transfer taxes and other governmental charges
imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorneys' Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to
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<PAGE> 10
attorneys' fees and expenses and all costs of proceedings incurred in enforcing
this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
California.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Leasing Director, cc: Legal Department, (and/or, if by facsimile, (708)
518-5465) and (ii) to the Company at 10975 Torreyana Road, #230, San Diego, CA
92121 (and/or if by facsimile, (619) 452-8799 or at such other address as any
such party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or
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<PAGE> 11
unenforceable provision shall be replaced by a mutually acceptable valid, legal
and enforceable provision, which comes closest to the intention of the parties
underlying the invalid, illegal or unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by a
written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company:
COMBICHEM, INC.,
a California corporation
By: /s/ Robert A. Curtis
--------------------------------
Robert A. Curtis, Chief Executive
Officer
Warrantholder:
COMDISCO, INC.,
a Delaware corporation
By: /s/James P. Labe
--------------------------------
Title: President Venture Lease Division
---------------------------------
<PAGE> 13
EXHIBIT I
NOTICE OF EXERCISE
To: COMBICHEM, INC.
(1) The undersigned Warrantholder hereby elects to purchase ______ shares of
CombiChem Inc.'s Series Z Preferred Stock pursuant to the terms of the
Warrant Agreement dated December 15, 1994 (the "Warrant Agreement") between
CombiChem, Inc. (the "Company") and the Warrantholder, and tenders herewith
payment of the purchase price for such shares in full, together with all
applicable transfer taxes, if any.
(2) In exercising its rights to purchase _______ shares of the Company's Series
Z Preferred Stock the Warrantholder hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series Z Preferred Stock in the name of the Warrantholder or in such other
name as is specified below.
- ----------------------------------
(Name)
- ----------------------------------
(Address)
Warrantholder:
COMDISCO, INC.,
a Delaware corporation
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
<PAGE> 14
ACKNOWLEDGEMENT OF EXERCISE
The undersigned officer of CombiChem, Inc. (the "Company") hereby
acknowledges receipt of the "Notice of Exercise" from Comdisco, Inc., to
purchase _______ shares of the Company's Series Z Preferred Stock, pursuant to
the terms of the Warrant Agreement, and further acknowledges that ______ shares
remain subject to purchase under the terms of the Warrant Agreement.
Company:
COMBICHEM, INC.,
a California corporation
By:
--------------------------------
Title:
-----------------------------
Date:
------------------------------
<PAGE> 15
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
----------------------------------
(Please Print)
whose address is
----------------------------------
----------------------------------
----------------------------------
Dated
-----------------------------
Holder's Signature
----------------------------------
Holder's Address
----------------------------------
----------------------------------
Signature Guaranteed:
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing Warrant
Agreement.
<PAGE> 16
AMENDMENT TO THE
SERIES Z PREFERRED STOCK WARRANT
THIS AMENDMENT to that certain Series Z Preferred Stock Warrant issued to
COMDISCO, INC. (the "Warrantholder") by COMBICHEM, INC. (the "Company") dated as
of December 20, 1994, by and among the Company and Warrantholder (the
"Amendment")
RECITALS
A. Pursuant to that certain Master Lease Agreement between the Warrantholder and
the Company dated as of November 16, 1994 and Equipment Schedule VL-1 dated
November 16, 1994, (the "Leases") each Phase I through Phase VI has been made
available and has been utilized by Company.
B. The Company and the Warrantholder have agreed to amend the Warrant to grant
the Warrantholder the right to purchase from the Company, an additional Fifty
Three Thousand Six Hundred Fifty Five Thousand (53,655) shares of the Company's
Series Z Preferred Stock at a purchase price of $0.50 per share.
In consideration of the mutual promises and covenants set forth herein, the
parties hereto agree that the Warrant is amended as follows:
1. INCREASE THE NUMBER OF SHARES GRANTED IN WARRANT.
1.1 Section 1 of the Warrant is hereby amended to read as follows:
"The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, Eighty Three Thousand Six
Hundred and Fifty Five (83,655) fully paid and non-assessable shares of the
Company's Series Z Preferred Stock ("Preferred Stock") at a purchase price
of $0.50 per share (the "Exercise Price"). The number and purchase price of
such shares are subject to adjustment as provided herein."
2. NO OTHER AMENDMENT, ETC.
2.1 Except as set forth herein, all terms of the Warrant shall continue in
full force and effect.
2.2 Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Warrant.
<PAGE> 17
2.3 This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original and all of which shall constitute one
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
the Warrant effective as of the date first above written.
THE COMPANY:
COMBICHEM, INC.
By: /s/ Peter Myers
-------------------------------
Title President and CEO
-----------------------------
THE WARRANTHOLDER:
COMDISCO, INC.
By: /s/ James P. Labe
-------------------------------
Title: James P. Labe, President
----------------------------
Venture Lease Division
<PAGE> 1
No. Series CS-1 EXHIBIT 10.14
35,000 Shares
COMMON STOCK PURCHASE WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS, THESE
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SAID ACT AND SUCH LAWS AND UPON OBTAINING AN OPINION OF
COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), SATISFACTORY TO THE
COMPANY, THAT SUCH DISPOSITION MAY BE MADE WITHOUT REGISTRATION OF THE
SECURITIES UNDER SUCH ACT AND SUCH LAWS, OR, WITH RESPECT TO FEDERAL
SECURITIES LAWS ONLY, UNLESS SOLD PURSUANT TO RULE 144.
COMBICHEM, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
THIS CERTIFIES THAT, for value received, LJL BioSystems, Inc., a
Delaware corporation ("Holder"), is entitled to purchase, on the terms hereof,
Thirty-Five Thousand (35,000) fully paid and nonassessable shares of Common
Stock, no par value (the "Common Stock") of CombiChem, Inc., a California
corporation (the "Company").
1. Exercise of Warrant. The terms and conditions upon which this
Warrant may be exercised, and the Common Stock covered hereby (the "Warrant
Shares") may be purchased, are as follows:
1.1 Term. This Warrant may be exercised in whole or in part at any
time at or prior to 5:00 p.m. Pacific time on June 15, 2000, after which time
this Warrant shall terminate and shall be void and of no further force or
effect.
1.2 Purchase Price. The per share purchase price for the shares of
Common Stock to be issued upon exercise of this Warrant (the "Exercise Price")
shall be $0.075, subject to adjustment as provided herein.
<PAGE> 2
1.3 Method of Exercise. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (i) the surrender of the Warrant,
together with a duly executed copy of the form of subscription attached hereto,
to the Company at its principal offices and (ii) the delivery of the Exercise
Price by check or bank draft payable to the Company's order for the number of
shares for which the purchase rights hereunder are being exercised or by wire
transfer of the Exercise Price to the Company's designated bank account.
1.4 Issuance of Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, a certificate or certificates for the purchased
shares shall be issued to the Holder as soon as practicable.
2. Certain Adjustments.
2.1 Mergers, Consolidations or Sale of Assets. If at any time
there shall be a capital reorganization (other than a combination or subdivision
of shares of Common Stock otherwise provided for herein), or a merger or
consolidation of the Company with or into another corporation or any sale of all
or substantially all of the Company's assets to another entity in which holders
of shares of the Company's Common Stock will receive in exchange therefor other
securities or assets, then, as a condition to the closing of such
reorganization, merger, consolidation or sale, lawful provision shall be made so
that the Holder shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified in this Warrant and upon payment of the
Exercise Price, in lieu of the Warrant Shares issuable upon exercise of the
Warrant, the number of shares of stock or other securities or property of the
Company or the successor corporation resulting from such reorganization, merger,
consolidation or sale to which Holder would have been entitled under the
provisions of the agreement in such reorganization, merger, consolidation or
sale if this Warrant had been exercised immediately before that reorganization,
merger, consolidation or sale. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the Holder after the reorganization, merger, consolidation or sale
to the end that the provisions of this Warrant (including adjustment of the
Exercise Price then in effect and the number of Warrant Shares that may be
purchased upon exercise of the Warrant) shall be applicable after that event, as
near as reasonably may be practicable, in relation to any shares of stock or
other securities or property deliverable after that event upon exercise of this
Warrant. The Company shall not effect any such reorganization, merger,
consolidation or sale unless prior to the consummation thereof, the successor
entity (if other than the Company) resulting from such reorganization, merger or
consolidation or the entity purchasing such assets, shall assume by written
instrument executed and delivered to the Company the obligation to deliver to
Holder such shares of stock or other securities or property as, in accordance
with the foregoing provisions, the Holder may be entitled to purchase.
2.2 Splits and Subdivisions. In the event the Company should at
any time or from time to time fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or issue by
reclassification of its Common Stock any other shares representing common equity
of the Company or pay a dividend on its Common
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<PAGE> 3
Stock in shares of Common Stock or other securities or rights convertible into,
or entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as the "Common Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or Common Equivalents, then, as of such record date (or the date of
such distribution, split, subdivision or reclassification if no record date is
fixed), the applicable Exercise Price shall be appropriately decreased and the
number of Warrant Shares issuable upon exercise of the Warrant shall be
appropriately increased in proportion to such increase of outstanding shares of
Common Stock.
2.3 Combination of Shares. If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination or
reclassification of the outstanding shares of Common Stock, then from and after
the record date for such combination or reclassification the applicable Exercise
Price shall be appropriately increased and the number of Warrant Shares issuable
upon exercise of the Warrant shall be appropriately decreased in proportion to
such decrease in outstanding shares of Common Stock.
2.4 Adjustments for Other Distributions. In the event the Company
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 2.2, then, in each
such case for the purpose of this subsection 2.4, upon exercise of this Warrant
the Holder shall be entitled to a proportionate share of any such distribution
as though such Holder was the holder of the number of shares of Common Stock of
the Company into which this Warrant may be exercised as of the record date fixed
for the determination of the holders of Common Stock of the Company entitled to
receive such distribution.
2.5 Certificate as to Adjustments. In the case of each adjustment
or readjustment of the Exercise Price pursuant to this Section 2, the Company
will promptly compute such adjustment or readjustment in accordance with the
terms hereof and cause a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based to be delivered to the Holder. The Company will, upon the
written request at any time of the Holder, furnish or cause to be furnished to
such Holder a certificate setting forth:
a. Such adjustments and readjustments;
b. The Exercise Price at the time in effect; and
c. The number of shares of Warrant Shares and the amount,
if any, of other property at the time receivable upon the exercise of the
Warrant.
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<PAGE> 4
2.6 Notices of Record Date, etc. In the event of:
a. Any taking by the Company of a record of the holders of
any class of securities of the Company for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend payable out of earned surplus at the same rate as that of the last such
cash dividend theretofore paid) or other distribution, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
b. Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of assets of the Company to any other
person or any consolidation or merger involving the Company; or
c. Any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company will mail to the holder of this Warrant, at least twenty (20) days
prior to the earlier of (y) the earliest date specified therein or (z) the
record date established for purposes of determining holders of Common Stock
entitled to participate therein, a notice specifying:
(i) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right; and
(ii) The date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding-up is expected to become effective and the record date for determining
shareholders entitled to vote thereon.
3. Representations, Warranties and Covenants of the Holder. Holder
hereby represents, warrants and covenants that:
3.1 Organization, Good Standing and Qualification. Holder is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has all requisite corporate power and authority to carry on its
business as now conducted.
3.2 Authorization. All corporate action on the part of Holder, its
officers and directors necessary for the authorization, execution and delivery
of this Warrant and the performance of all obligations of Holder hereunder has
been taken, and this Warrant constitutes a valid and legally binding obligation
of Holder enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the enforcement of creditors' rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
-4-
<PAGE> 5
3.3 Purchase Entirely for Own Account. This Warrant is delivered
to Holder in reliance upon Holder's representation to the Company, which by
Holder's execution of this Warrant Holder hereby confirms, that this Warrant and
the Warrant Shares (collectively, the "Securities") are being acquired for
investment for Holder's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof. Holder represents that
it has full power and authority to enter into this Warrant.
3.4 Investment Experience. Holder acknowledges that it is able to
fend for itself, can bear the economic risk of its investment and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Securities. Holder also
represents it has not been organized for the purpose of acquiring the
Securities.
3.5 Accredited Holder. Holder is an "accredited investor" within
the meaning of SEC Rule 501 of Regulation D and an "excluded purchaser" within
the meaning of Section 25102(f) of the California Corporate Securities Law of
1968, as amended, each as presently in effect.
3.6 Legends. It is understood that the certificates evidencing the
Securities, including the Warrant Shares, may bear the following legend:
"These securities have not been registered under the Securities Act
of 1933, as amended, or applicable state securities laws. In the
absence of an effective registration statement under such act and
such laws, these securities may not be offered, sold, transferred or
otherwise disposed of, except pursuant to an applicable exemption
from the registration requirements of said act and such laws and
upon obtaining an opinion of counsel (which may be counsel for the
company), satisfactory to the company, that such disposition may be
made without registration of the securities under such act and such
laws, or, with respect to federal securities laws only, unless sold
pursuant to Rule 144."
4. California Commissioner of Corporations and Compliance with
Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF
THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR
RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. Fractional Shares. No fractional shares shall be issued in
connection with any exercise of this Warrant. In lieu of the issuance of such
fractional share, the Company shall
-5-
<PAGE> 6
make a cash payment equal to the then Fair Market Value of such fractional share
as determined in good faith by the Company's Board of Directors.
6. Reservation of Shares. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the exercise of this Warrant, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
exercise in full of this Warrant; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
exercise of the entire Warrant, in addition to such other remedies as shall be
available to the Holder, the Company will use its reasonable best efforts to
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
7. Privileges of Stock Ownership. Prior to the exercise of this
Warrant, the Holder shall not be entitled, by virtue of holding this Warrant, to
any rights of a shareholder of the Company.
8. Limitation of Liability. Except as otherwise provided herein, in the
absence of affirmative action by the Holder to purchase the Warrant Shares, no
mere enumeration herein of the rights or privileges of the Holder shall give
rise to any liability of such Holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
9. Transfers and Exchanges.
9.1 Transfer. The Warrant or any interest in it may be transferred
or assigned upon written notice to the Company by the Holder, subject to
compliance with applicable federal and state securities laws. Any permitted
transfer shall be recorded on the books of the Company upon the surrender of
this Warrant, properly endorsed, to the Company at its principal offices and the
payment to the Company of all transfer taxes and other governmental charges
imposed on such transfer. In the event of a permitted partial transfer, the
Company shall issue to the several holders one or more appropriate new warrants.
9.2 Partial Exercise. In the event of a partial exercise of this
Warrant, the Company shall issue an appropriate new warrant to the Holder.
9.3 New Warrants. All new warrants issued in connection with
transfers, exchanges or partial exercises shall be identical in form and
provision to this Warrant except as to the number of shares.
10. Successors and Assigns. The terms and provisions of this Warrant
shall be binding upon the Company and the Holder and their respective successors
and assigns.
11. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation
-6-
<PAGE> 7
of this Warrant, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to the Company, and upon reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make and deliver a
new warrant of like tenor and dated as of such cancellation, in lieu of this
Warrant.
12. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised, except as to payment of the
Exercise Price, on the next succeeding day not a legal holiday.
13. Amendments and Waivers; Cancellation. Any term of this Warrant may
be amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holder.
Dated: June 15, 1995 COMBICHEM, INC.
By: /s/ Robert A. Curtis
-------------------------------------
Title: President and CEO
----------------------------------
The undersigned Holder agrees and accepts this Warrant and acknowledges
that it has read and confirms each of the representations contained in Section 3
of this Warrant.
LJL BIOSYSTEMS, INC.
By: /s/ illegible
-------------------------------------
Title: President and CEO
----------------------------------
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
-7-
<PAGE> 8
PURCHASE FORM
(To be executed by the Warrant Holder if it desires to exercise the Warrant in
whole or in part)
To: COMBICHEM, INC.
The undersigned, whose Social Security or other identifying number is
____________________, hereby irrevocably elects the right of purchase
represented by the within Warrant for, and to purchase thereunder,
___________________________ shares of securities provided for therein and
tenders payment herewith to the order of
COMBICHEM, INC.
in the amount of
$...........................
The undersigned requests that certificates for such shares be issued as follows:
Name: .................................
Address: ..............................
Deliver to: ...........................
Address: ..............................
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below Address: ..............................
Dated: __________________, 19__
Signature................................
(Signature must conform in all respects to
the name of the Warrant Holder as
specified on the face of the Warrant,
without alteration, enlargement or any
change whatsoever)
-8-
<PAGE> 1
STOCK PURCHASE WARRANT EXHIBIT 10.15
THIS WARRANT AND THE SHARES OF STOCK WHICH MAY BE PURCHASED PURSUANT TO THE
EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH SALE, OFFER OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND
OF ANY APPLICABLE STATE SECURITIES LAWS UNLESS SOLD PURSUANT TO RULE 144 OF THE
ACT.
No. C-_ COMBICHEM, INC.
WARRANT TO PURCHASE SHARES OF STOCK
THIS CERTIFIES THAT, for value received, ________________ (the "Holder")
is entitled to subscribe for and purchase _______________________________
(_____) shares (the "Shares") of Series C Preferred Stock of CombiChem, Inc.
Subject to the provisions and upon the terms and conditions hereinafter set
forth, Shares purchased under this Warrant shall be subject to purchase at $0.62
per share, as adjusted pursuant to Section 3 hereof (the "Exercise Price").
1. Method of Exercise; Payment.
(a) Cash Exercise. The purchase rights represented by this Warrant
may be exercised by the Holder in whole or in part, by the surrender of this
Warrant (with the Notice of Exercise form attached hereto as Exhibit B-I duly
executed) at the principal office of the Company, and by the payment to the
Company, by certified, cashier's, or other check acceptable to the Company, of
an amount equal to the aggregate Exercise Price of the shares being purchased.
(b) Net Issue Exercise.
(i) In lieu of exercising this Warrant pursuant to Section
l(a) hereof, the Holder may elect to receive a number of Shares equal to the
value (as determined below) of this Warrant (or the portion thereof being
cancelled) by surrender of this Warrant at the principal office of the Company
together with the Notice of Exercise in which
<PAGE> 2
alternative No. 1 is initialed by the Holder. In such event, the Company shall
issue to the Holder a number of Shares computed using the following formula:
X: Y (A-B)
-------
A
Where X = the number of Shares to be issued to the Holder.
Y = the number of Shares subject to this Warrant.
A = the fair market value of one Share.
B = the Exercise Price (as adjusted to the date of such calculation).
(ii) Automatic Exercise. This Warrant shall automatically be
exercised pursuant to Section l(b) hereof immediately before its expiration
pursuant to Section 10 hereof, unless Holder notifies the Company in writing to
the contrary before such termination.
(c) Fair Market Value. For purposes of this Warrant, the fair
market value of the security issuable upon exercise of the Warrant shall mean:
(i) The average of the closing bid and asked prices of the
Company's Common Stock quoted in the Over-The-Counter Market Summary or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall Street
Journal for the ten trading days prior to the date of determination of fair
market value;
(ii) If the Company's Common Stock is not traded
Over-The-Counter or on an exchange, the per share fair market value of the
security issuable upon exercise of the Warrant shall be determined in good faith
by the Company's Board of Directors.
(d) Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the Shares so purchased shall be
delivered to the Holder within five business days and, unless this Warrant has
been fully exercised or has expired, a new Warrant representing the shares with
respect to which this Warrant shall not have been exercised shall also be issued
to the Holder within such time. The holder of this Warrant may make any exercise
of this Warrant contingent upon the consummation of a public offering of the
Common Stock registered under the Securities Act of 1933, as amended.
(e) Exercise into Common Stock. Upon any exercise of this Warrant,
at the election of the Holder so exercising, this Warrant may be exercised into
the number of shares of Common Stock into which the Shares issuable upon such
exercise are then convertible.
-2-
<PAGE> 3
2. Stock Fully Paid; Reservation of Shares. All of the Shares issuable
upon the exercise of the rights represented by this Warrant will, upon issuance
and receipt of the Exercise Price therefor, be fully paid and nonassessable, and
free from all stock transfer taxes, liens and charges with respect to the issue
thereof. During the period within which the rights represented by this Warrant
may be exercised, the Company shall at all times have authorized and reserved
for issuance sufficient Shares to provide for the exercise of the rights
represented by this Warrant and sufficient shares of Common Stock to provide for
the conversion of such Shares.
3. Adjustment of Exercise Price and Number of Shares. Subject to the
provisions of Section 11 hereof, the number and kind of securities purchasable
upon the exercise of this Warrant and the Exercise Price therefor shall be
subject to adjustment from time to time upon the occurrence of certain events,
as follows:
(a) Reclassification, Consolidation or Merger. In case of any
reclassification or change of the Shares, the Company shall execute a new
Warrant, providing that the holder of this Warrant shall have the right to
exercise such new Warrant, and procure upon such exercise and payment of the
same aggregate Exercise Price, in lieu of the Shares theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification or change
by a holder of an equivalent number of shares of Shares. Such new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 3. The provisions of
this subsection (a), subject to Section 11 hereof, shall similarly apply to
successive reclassifications or changes.
(b) Stock Splits, Dividends and Combinations. In the event that
the Company shall at any time subdivide the outstanding Shares, or shall issue a
stock dividend on its outstanding Shares, the number of Shares issuable upon
exercise of this Warrant immediately prior to such subdivision or to the
issuance of such stock dividend shall be proportionately increased, and the
Exercise Price shall be proportionately decreased, and in the event that the
Company shall at any time combine the outstanding Shares, the number of Shares
issuable upon exercise of this Warrant immediately prior to such combination
shall be proportionately decreased, and the Exercise Price shall be
proportionately increased, effective at the close of business on the date of
such subdivision, stock dividend or combination, as the case may be.
4. Notice of Adjustments. Whenever the number of Shares purchasable
hereunder or the Exercise Price thereof shall be adjusted pursuant to Section 3
hereof, the Company shall provide notice by first class mail to the holder of
this Warrant setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the number of Shares which may be purchased and the Exercise
Price therefor after giving effect to such adjustment.
5. Fractional Shares. No fractional Shares may be issued in connection
with any exercise hereunder. In lieu of such fractional shares, the Company
shall make a cash payment therefor based upon the fair market value of the
Shares.
-3-
<PAGE> 4
6. Representations and Warranties by the Holder. The Holder represents
and warrants to the Company as follows:
(a) This Warrant and the Shares issuable upon exercise thereof are
being acquired for their own accounts, for investment and not with a view to, or
for resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act of 1933, as amended (the "Act"). Upon
exercise of this Warrant, the Holder shall, if so requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the securities
issuable upon exercise of this Warrant are being acquired for investment and not
with a view toward distribution or resale.
(b) The Holder understands that the Warrant and the Shares have
not been registered under the Act by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the Act
pursuant to Section 4(2) thereof, and that they must be held by the Holder
indefinitely, and that the Holder must therefore bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the Act or is exempted from such registration. The Holder further
understands that the Shares have not been qualified under the California
Securities Law of 1968 (the "California Law") by reason of their issuance in a
transaction exempt from the qualification requirements of the California Law
pursuant to Section 25102(f) thereof, which exemption depends upon, among other
things, the bona fide nature of the Holder's investment intent expressed above.
(c) The Holder has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
purchase of this Warrant and the Shares purchasable pursuant to the terms of
this Warrant and of protecting its interests in connection therewith.
(d) The Holder is able to bear the economic risk of the purchase
of the Shares pursuant to the terms of this Warrant.
7. Restrictive Legend.
The Shares issuable upon exercise of this Warrant (unless registered
under the Act or transferable under Rule 144(k)) shall be stamped or imprinted
with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD,
OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE, OFFER OR TRANSFER IS EXEMPT
FROM THE
-4-
<PAGE> 5
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF
THE CORPORATION.
8. Restrictions Upon Transfer and Removal of Legend.
(a) This Warrant is not transferrable except in compliance with
applicable securities law. The Company need not register a transfer of Shares
bearing the restrictive legend set forth in Section 7 hereof, unless the
conditions specified in such legend are satisfied. The Company may also instruct
its transfer agent not to register the transfer of the Shares, unless one of the
conditions specified in the legend referred to in Section 7 hereof is satisfied.
(b) Notwithstanding the provisions of paragraph (a) above, no
opinion of counsel or "no-action" letter shall be necessary for a transfer
without consideration by any holder (i) to an affiliate of the holder, (ii) if
such holder is a partnership, to a partner or retired partner of such
partnership who retires after the date hereof or to the estate of any such
partner or retired partner, (iii) if such holder is a corporation, to a
shareholder of such corporation, or (iv) by gift, will, or intestate succession
of any individual holder to his spouse or siblings, or to the lineal descendants
or ancestors of such holder or his spouse, if the transferee agrees in writing
to be subject to the terms hereof to the same extent as if such transferee were
the original holder hereunder.
9. Rights of Shareholders. No holder of this Warrant shall be entitled,
as a Warrant holder, to vote or receive dividends or be deemed the holder of
Shares or any other securities of the Company which may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the Shares purchasable upon the exercise
hereof shall have become deliverable, as provided herein.
10. Expiration of Warrant. This Warrant shall expire and shall no longer
be exercisable as of 5:00 p.m., California local time, on the fifth anniversary
of the date of issuance.
-5-
<PAGE> 6
11. Amendment. This Warrant and any provision hereof may be amended,
waived or terminated only by an instrument in writing signed by the Company and
the Holder of this Warrant.
12. Notices, Etc.. All notices and other communications from the Company
to the Holder shall be mailed by first class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company in
writing by the Holder.
13. Governing Law, Headings. This Warrant is being delivered in the
State of California and shall be construed and enforced in accordance with and
governed by the laws of such State. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
Issued this ____ day of ______, 19__.
COMBICHEM, INC.
By: _____________________________________
Title: __________________________________
WARRANT HOLDER:
By: ________________________
Title: _____________________
-6-
<PAGE> 7
EXHIBIT B-1
NOTICE OF EXERCISE
TO: COMBICHEM, INC.
Attention: President
1. In lieu of exercising the attached Warrant for cash, check or
cancellation of indebtedness, the undersigned hereby elects to effect the net
issuance provision of Section l(b) of the attached Warrant and receive
_________________ (leave blank if you choose Alternative No. 2 below) Shares of
CombiChem, Inc. pursuant to the terms of the attached Warrant. (Initial here if
the undersigned elects this alternative) ________________.
2. The undersigned elects to purchase _____________ (leave blank if you
choose Alternative No. 1 above) Shares of CombiChem, Inc. pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price for
such Shares in full, together with all applicable transfer taxes, if any.
3. Please issue a certificate or certificates representing said Shares
in the name of the undersigned or in such other name as is specified below:
-----------------------------
(Name)
-----------------------------
-----------------------------
(Address)
4. The undersigned hereby represents and warrants that the aforesaid
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale, in connection with the distribution thereof in
violation of applicable law, and that the undersigned has no present intention
of distributing or reselling such shares in violation of applicable law and all
representations and warranties of the undersigned set forth in Section 6 of the
attached Warrant are true and correct as of the date hereof. In support thereof,
the undersigned agrees to execute an Investment Representation Statement in a
form substantially similar to the form attached to the Warrant as Exhibit B-2.
--------------------------------
(Signature)
Title:___________________________
- ------------------
(Date)
-1-
<PAGE> 8
EXHIBIT B-2
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : _________________________________________________
SELLER : COMBICHEM, INC.
COMPANY : COMBICHEM, INC.
SECURITY : SHARES OF STOCK, identified in the STOCK PURCHASE WARRANT
ISSUED ON ______________, 199__, a copy of which is attached
hereto.
AMOUNT : ____________________________ SHARES
DATE : ________________, 199__
In connection with the purchase of the above-listed Securities, the undersigned
represents to the Seller and to the Company the following:
(a) The undersigned is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
undersigned is purchasing these Securities for his/her own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "Securities Act").
(b) The undersigned understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of his/her investment intent as expressed herein. In this connection, the
undersigned understands that, in the view of the Securities and Exchange
Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if this representation was predicated solely upon a present
intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) The undersigned further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, the undersigned
understands that the Company is under no obligation to register the Securities.
In addition, the undersigned understands that the certificate evidencing the
Securities will be imprinted with a legend
-1-
<PAGE> 9
which prohibits the transfer of the Securities unless they are registered or
such registration is not required in the opinion of counsel for the Company or
Rule 144(k) is available.
(d) The undersigned is familiar with the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions.
The Securities may be resold in certain limited circumstances subject to
the provisions of Rule 144, which requires among other things: (1) the
availability of certain public information about the Company, (2) the resale
occurring not less than two years after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities less
than three years, (3) the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three-month period not exceeding the specified
limitations stated therein, if applicable.
(e) The undersigned agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell, make
short sale of, loan, grant any options for the purchase of, or otherwise dispose
of any Shares of the Company held by the undersigned (other than those shares
included in the registration) without the prior written consent of the Company
or the underwriters managing such initial underwritten public offering of the
Company's securities for one hundred eighty (180) days from the effective date
of such registration, and (2) the undersigned further agrees to execute any
agreement reflecting (1) above as may be requested by the underwriters at the
time of the public offering; provided however that the officers and directors of
the Company who own the stock of the Company also agree to such restrictions.
(f) The undersigned further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 is
not exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial burden
of proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
-----------------------------------------
By:______________________________________
Title:___________________________________
Date:_______________________, 19___
-2-
<PAGE> 10
SCHEDULE A
Warrantholders
Sequoia Capital VI
Sequoia Technology Partners VI
Sequoia XXIV
Paine Webber Incorporated as Custodian of the
Michael Grossman Rollover IRA
North American Trust Company, Trustee FBO SK
Int'l SEC E/M Kandel
-3-
<PAGE> 1
EXHIBIT 10.16
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series C Preferred Stock of
COMBICHEM, INC.
Dated as of ______________ (the "Effective Date")
WHEREAS, CombiChem, Inc., a California corporation (the "Company") has
entered into a Master Lease Agreement dated as of November 16, 1994 Equipment
Schedule No. VL-2 dated as of April 15, 1996, and related Summary Equipment
Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series C Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, up to _______ fully paid and
non-assessable shares of the Company's Series C Preferred Stock ("Preferred
Stock") at a purchase price of $.62 per share (the "Exercise Price"), with the
aggregate number of shares issuable hereunder determined as set forth below:
COMMITMENT AMOUNT UTILIZED AGGREGATE RESULTANT SHARES ISSUABLE HEREUNDER
$0.00 - $333,333.00 34,946
$333,333.01 - $666,666.00 69,892
$666,666.01 - $1,000,000.00 104,838
The number and purchase price of such shares are subject to adjustment as
provided in Section 8 hereof.
<PAGE> 2
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant Agreement and
the right to purchase Preferred Stock as granted herein shall commence on the
Effective Date and shall be exercisable for a period of (i) seven (7) years
thereafter or (ii) three (3) years from the effective date of the Company's
initial public offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by the
Warrantholder, in whole or in part, at any time, or from time to time, prior to
the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i) by
cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined
below. If the Warrantholder elects the Net Issuance method, the Company will
issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Common Stock
shall mean with respect to each share of Common Stock:
(a) if the exercise is in connection with an initial public offering of the
Company's Common Stock, and if the Company's Registration Statement relating to
such public offering has been declared effective by the SEC, then the fair
market value per share shall be the product of (x) the initial "Price to Public"
specified in the final prospectus with respect to the offering and (y) the
number of shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(b) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
<PAGE> 3
(i) if traded on a securities exchange, the fair market value shall be
deemed to be the product or (x) the average of the closing prices over a
twenty-one (21) day period ending three days before the day the current
fair market value of the securities is being determined and (y) the number
of shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise; or
(ii) if actively traded over-the-counter, the fair market value shall
be deemed to be the product of (x) the average of the closing bid and asked
prices quoted on the Nasdaq system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair market
value of the securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is convertible at the
time of such exercise;
(c) if at any time the Common Stock is not listed on any securities
exchange or quoted in the Nasdaq System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x) the
highest price per share which the Company could obtain from a willing buyer (not
a current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by its Board of
Directors and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise, unless the Company
shall become subject to a merger, acquisition or other consolidation pursuant to
which the Company is not the surviving party, in which case the fair market
value of Common Stock shall be deemed to be the value received by the holders of
the Company's Preferred Stock on a common equivalent basis pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall promptly
issue an amended Warrant Agreement representing the remaining number of shares
purchasable hereunder. All other terms and conditions of such amended Warrant
Agreement shall be identical to those contained herein, including, but not
limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be issued
upon the exercise of the Warrant, but in lieu of such fractional shares the
Company shall make a cash payment therefor upon the basis of the Exercise Price
then in effect.
<PAGE> 4
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting rights
or other rights as a shareholder of the Company prior to the exercise of the
Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock
<PAGE> 5
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of all shares of the Company's
stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's Articles
of Incorporation, as amended through the Effective Date, a true and complete
copy of which is attached hereto as Exhibit _ (the "Charter") and the Company
shall provide the Warrantholder the same notices provided to the holders of
Preferred Stock as set forth therein.
(f) Notice of Adjustments and other events. If: (i) the Company shall
declare any dividend or distribution upon its stock, whether in cash, property,
stock or other securities; (ii) the Company shall offer for subscription prorata
(other than pursuant to the Investors' Rights Agreement dated as of August 17,
1995 as amended from time to time ("Investors' Rights Agreement") to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an initial public offering; or (v) there shall be any
voluntary or involuntary dissolution, liquidation or winding up of the Company;
then, in connection with each such event, the Company shall send to the
Warrantholder: (A) at least twenty (20) days' prior written notice of the date
on which the books of the Company shall close or a record shall be taken for
such dividend, distribution, subscription rights (specifying the date on which
the holders of Preferred Stock shall be entitled thereto) or for determining
rights to vote in respect of such Merger Event, dissolution, liquidation or
winding up; (B) in the case of any such Merger Event, dissolution, liquidation
or winding up, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Preferred Stock shall be entitled to exchange their Preferred Stock for
securities or other property deliverable upon such Merger Event, dissolution,
liquidation or winding up); and (C) in the case of a public offering, the
Company shall give the Warrantholder at least twenty (20) days written notice
prior to the effective date hereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
subsection (f) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
five days after the date such notice is deposited in 1st class mail or the date
Warrantholder actually receives a written notice from overnight service .
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions
<PAGE> 6
of this Warrant Agreement, will be validly issued, fully paid and
non-assessable, and will be free of any taxes, liens, charges or encumbrances of
any nature whatsoever; provided, however, that the Preferred Stock issuable
pursuant to this Warrant Agreement may be subject to restrictions on transfer
under state and/or Federal securities laws. The Company has made available to
the Warrantholder true, correct and complete copies of its Charter and Bylaws,
as amended. The issuance of certificates for shares of Preferred Stock upon
exercise of the Warrant Agreement shall be made without charge to the
Warrantholder for any issuance tax in respect thereof, or other cost incurred by
the Company in connection with such exercise and the related issuance of shares
of Preferred Stock. The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved and the issuance and delivery of
any certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act, if any and any filing required by applicable state
securities law, which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of : (a) 50,418,334
shares of Preferred stock, no par value, of which 1,000,000 shares have
been designated Series A Preferred Stock, all of which are issued and
outstanding, 2,226,667 shares have been designated Series B Preferred
Stock, all of which are issued and outstanding, 21,000,000 shares have been
designated Series C Preferred Stock 17,158,486 of which are issued and
outstanding, 1,500,000 shares have been designated Series Z Preferred
Stock, 200,000 of which are issued and outstanding, 465,000 shares have
been designated Series J Preferred Stock, none of which are issued and
outstanding, 1,000,000 shares have been designated Series A-1 Preferred
Stock, none of which are issued and outstanding, 2,226,667 shares have been
designated Series B- I Preferred Stock, none of which are issued and
outstanding, 21,000,000 shares have been designated Series C-1 Preferred
Stock, none of which are issued and outstanding; and (b) 60,000,000 shares
of common stock, no par value, of which 2,646,660 shares are issued and
outstanding.
(ii) Except for (A) the conversion privileges of the preferred stock,
(B) the rights provided in paragraph 2.3 of the Investors' Rights
Agreement, (C) currently outstanding options to purchase 3,089,920 shares
of common stock granted to employees or consultants pursuant to the
Company's 1995
<PAGE> 7
Stock Option/Stock Issuance Plan ("Plan"), (D) options to purchase 465,000
shares of Series J Preferred Stock granted or to be granted to certain
employees in connection with their employment by the Company, (e) 120,968
shares of Series C Preferred Stock issuable upon conversion of the Series C
Warrants, (F) up to 83,655 shares of Series Z Preferred Stock issuable upon
conversion of warrants issued (or to be issued) in connection with the
Company's equipment lease line, (G) 35,000 shares of common stock issuable
upon conversion of warrants, (H) up to 325,807 shares of Series Z Preferred
Stock issuable in connection with that certain Agreement dated August 4,
1995 among the Company, Molecular Simulations Inc. and Entropix
Corporation, and (I) the right of first offer and other rights set forth in
the Employment Agreement dated on or about March 14, 1996 between the
Company and Vicente Anido, there are not outstanding any options, warrants,
rights (including conversion or preemptive rights and rights of first
refusal) or agreements for the purchase of or acquisition from the Company
of any shares of its capital stock.
(e) Insurance. The Company has in full force and effect insurance policies,
with extended coverage, insuring the Company and its property and business
against such losses and risks, and in such amounts, as are customary for
corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement and the Investors' Rights Agreement, the Company is not,
pursuant to the terms of any other agreement currently in existence, under any
obligation to register under the 1933 Act any of its presently outstanding
securities or any of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance upon the
following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise
<PAGE> 8
of this Warrant is not registered under the 1933 Act or qualified under
applicable state securities laws on the ground that the issuance contemplated by
this Warrant Agreement will be exempt from the registration and qualifications
requirements thereof, and (ii) that the Company's reliance on such exemption is
predicated on the representations set forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the.
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof, this Warrant
<PAGE> 9
Agreement and all rights hereunder are transferable in whole or in part by the
Warrantholder and any successor transferee (which shall be an accredited
investor), provided, however, in no event shall the number of transfers of the
rights and interests in all of the Warrants exceed three (3) transfers. The
transfer shall be recorded on the books of the Company upon receipt by the
Company of a notice of transfer in the form attached hereto as Exhibit III (the
"Transfer Notice"), at its principal offices and the payment to the Company of
all transfer taxes and other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
California.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Group, cc: Legal Department, attn: General Counsel, (and/or, if by facsimile,
(708) 518-5466 and (708)518-5088) and (ii) to the Company at 9050 Camino Santa
Fe, San Diego, CA 92121, attention: President(and/or if by facsimile,
(619)530-9998) or at such other address as any such party may subsequently
designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties
<PAGE> 10
contained herein or made pursuant to this Warrant Agreement shall survive the
execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
0) Amendments. Any provision of this Warrant Agreement may be amended by a
written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), and (f) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be
executed by its officers thereunto duly authorized as of the Effective Date.
Company: COMBICHEM, INC.
By:
--------------------------------
Title: President & CEO
Warrantholder: COMDISCO, INC.
By:
--------------------------------
Title: President, Venture Lease Division
<PAGE> 11
EXHIBIT I
NOTICE OF EXERCISE
To:
--------------------------
(1) The undersigned Warrantholder hereby elects to purchase _______ shares of
the Series ___ Preferred Stock of ______________________, pursuant to the
terms of the Warrant Agreement dated the ______ day of _____________, 19__
(the "Warrant Agreement") between _______________________________________
and the Warrantholder, and tenders herewith payment of the purchase price
for such shares in full, together with all applicable transfer taxes, if
any.
(2) In exercising its rights to purchase the Series ___ Preferred Stock of
____________________, the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series _____ Preferred Stock in the name of the undersigned or in such
other name as is specified below.
- -----------------------------
(Name)
- -----------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
--------------------------
Title:
-----------------------
Date:
------------------------
I-1
<PAGE> 12
EXHIBIT II
ACKNOWLEDGEMENT OF EXERCISE
The undersigned , hereby acknowledge receipt of the "Notice of Exercise"
from Comdisco, Inc., to purchase ________ shares of the Series ___Preferred
Stock of __________________________, pursuant to the terms of the Warrant
Agreement, and further acknowledges that ________ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company:
By:
--------------------------------
Title:
-----------------------------
Date:
------------------------------
II-1
<PAGE> 13
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- ---------------------------------------
(Please Print)
whose address is
-----------------------
- ---------------------------------------
Dated
-----------------------------
Holder's Signature
----------------
Holder's Address
------------------
----------------------------------
Signature Guaranteed:
------------------
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing Warrant
Agreement.
III-1
<PAGE> 14
SCHEDULE A
Date of Warrant Number of Shares
- --------------- ----------------
04/15/96 104,838
04/15/96 36,693
06/27/97 98,790
<PAGE> 1
EXHIBIT 10.17
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THIS WARRANT.
COMBICHEM, INC.
WARRANT TO PURCHASE ______ SHARES
OF SERIES Z PREFERRED STOCK
THIS CERTIFIES THAT, for value received, ___________________ and its
assigns are entitled to subscribe for and purchase ______ shares of the fully
paid and nonassessable Series Z Preferred Stock (as adjusted pursuant to Section
4 hereof, the "Shares") of COMBICHEM, INC., a California corporation (the
"Company"), at the price of $0.62 per share (such price and such other price as
shall result, from time to time, from the adjustments specified in Section 4
hereof is herein referred to as the "Warrant Price"), subject to the provisions
and upon the terms and conditions hereinafter set forth; provided, however, that
this Warrant shall first become exercisable (i) as to _____ Shares upon the date
of the first funding under the Loan Agreement (as defined below); (ii) as to an
additional _____ Shares upon the earlier to occur of (A) the date of the second
funding under the Loan Agreement or (B) the date of the funding under the Loan
Agreement which causes the aggregate amount funded under the Loan Agreement to
exceed $250,000; (iii) as to an additional _____ Shares upon the earlier to
occur of (A) the date of the third funding under the Loan Agreement or (B) the
date of the funding under the Loan Agreement which causes the aggregate amount
funded under the Loan Agreement to exceed $500,000; and (iv) as to an additional
_____ Shares upon the earlier to occur of (A) the date of the fourth funding
under the Loan Agreement or (B) the date of the funding under the Loan Agreement
which causes the aggregate amount funded under the Loan Agreement to exceed
$750,000; provided, further, that notwithstanding the number of fundings under
the Loan Agreement or the amount funded under the Loan Agreement, this Warrant
shall be exercisable as to all 27,581 Shares on April 30, 1997. As used herein,
(a) the term "Series Preferred" shall mean the Company's presently authorized
Series Z Preferred Stock, and any stock into or for which such Series Z
Preferred Stock may hereafter be converted or exchanged, (b) the term "Date of
Grant" shall mean May 20, 1996, (c) the term "Loan Agreement" shall mean the
Loan and Security Agreement, dated as of the Date of Grant, among the Company,
MMC/GATX Partnership No. I and Silicon Valley Bank, and (d) the term "Other
Warrants" shall mean any other warrants issued by the Company in connection with
the transaction with respect to which this Warrant was issued, and any warrant
issued upon transfer or partial exercise of this Warrant. The term "Warrant" as
used herein shall be deemed to include Other Warrants unless the context clearly
requires otherwise.
<PAGE> 2
1. Term. The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time and from time to time from the Date of Grant
through the later of (i) ten (10) years after the Date of Grant or (ii) five (5)
years after the closing of the Company's initial public offering of its Common
Stock effected pursuant to a Registration Statement on Form S-1 (or its
successor) filed under the Securities Act of 1933, as amended (the "Act").
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to Section
1 hereof, the purchase right represented by this Warrant may be exercised by the
holder hereof, in whole or in part and from time to time, by either, at the
election of the holder hereof, (a) the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A duly executed) at the
principal office of the Company and by the payment to the Company, by check, of
an amount equal to the then applicable Warrant Price multiplied by the number of
Shares then being purchased, or (b) if in connection with a registered public
offering of the Company's securities, the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A-1 duly executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by check or from
the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased. The person or persons
in whose name(s) any certificate(s) representing shares of Series Preferred
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed to
have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of the
rights represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in any
event within thirty days after such exercise and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance
pursuant to the terms and conditions herein, be fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of the issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of shares of its Series Preferred to provide for
the exercise of the rights represented by this Warrant and a sufficient number
of shares of its Common Stock to provide for the conversion of the Series
Preferred into Common Stock.
4. Adjustment of Warrant Price and Number of Shares. The number and kind of
securities purchasable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
2
<PAGE> 3
(a) Reclassification or Merger. In case of any reclassification,
change or conversion of securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the acquiring and
the surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to the holder of this Warrant a new Warrant (in form
and substance satisfactory to the holder of this Warrant), so that the holder of
this Warrant shall have the right to receive, at a total purchase price not to
exceed that payable upon the exercise of the unexercised portion of this
Warrant, and in lieu of the shares of Series Preferred theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money.and property receivable upon such reclassification, change or
merger by a holder of the number of shares of Series Preferred then purchasable
under this Warrant. Such new Warrant shall provide for adjustments that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 4. In addition, in the event that all the authorized shares of
Series Preferred are converted into shares of Common Stock or any other series
or class of capital stock of the Company or in the case of any amendment or
waiver of any of the terms of the antidilution protection of the Series
Preferred, then this Warrant shall be deemed to be amended so that the holder of
this Warrant shall continue to be entitled to antidilution protection as nearly
equivalent as may be practicable to the antidilution protection applicable to
the Series Preferred on the Date of Grant, and the Company shall duly execute
and deliver to the holder of this Warrant a supplement hereto to such effect, in
form and substance reasonably satisfactory to the holder of this Warrant. The
provisions of this subparagraph (a) shall similarly apply to successive
reclassifications, changes, mergers, consolidations, transfers, amendments and
waivers.
(b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its outstanding shares of Series Preferred, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the case
of a combination, effective at the close of business on the date the subdivision
or combination becomes effective.
(c) Stock Dividends and Other Distributions. If the Company at any
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Series Preferred payable in Series Preferred, or (ii) make any
other distribution with respect to Series Preferred (except any distribution
specifically provided for in the foregoing subparagraphs (a) and (b)) of Series
Preferred, then the Warrant Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Warrant Price in effect immediately
prior to such date of determination by a fraction (i) the numerator of which
shall be the total number of shares of Series Preferred outstanding immediately
prior to such dividend or distribution, and (ii) the
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<PAGE> 4
denominator of which shall be the total number of shares of Series Preferred
outstanding immediately after such dividend or distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price, the number of Shares of Series Preferred purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
(e) Antidilution Rights. The other antidilution rights applicable to
the Shares and the Common Stock of the Company are set forth in Section 4 of
Division B of Article III of the Company's Articles of Incorporation, as amended
through the Date of Grant (the "Charter"), a true and complete copy of which is
attached hereto as Exhibit B. Such antidilution rights shall not be restated,
amended, modified or waived in any manner that is adverse to the holder hereof
without such holder's prior written consent. The Company shall promptly provide
the holder hereof with any restatement, amendment, modification or waiver of the
Charter promptly after the same has been made.
5. Notice of Adjustments. Whenever the Warrant Price or the number of
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall make a certificate signed by its chief financial officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Shares purchasable hereunder after giving effect
to such adjustment, which shall be mailed (without regard to Section 13 hereof,
by first class mail, postage prepaid) to the holder of this Warrant. In
addition, whenever the conversion price or conversion ratio of the Series
Preferred shall be adjusted, the Company shall make a certificate signed by its
chief financial officer setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the conversion price or ratio of the Series
Preferred after giving effect to such adjustment, and shall cause copies of such
certificate to be mailed (without regard to Section 13 hereof, by first class
mail, postage prepaid) to the holder of this Warrant.
6. Fractional Shares. No fractional shares of Series Preferred will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value of the Series Preferred on the date of exercise as reasonably determined
in good faith by the Company's Board of Directors.
7. Compliance with Securities Act: Disposition of Warrant or Shares of
Series Preferred.
(a) Compliance with Securities Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, and the shares of Series Preferred
to be issued upon exercise hereof and any Common Stock issued upon conversion
thereof are being acquired for investment
4
<PAGE> 5
and that such holder will not offer, sell or otherwise dispose of this Warrant,
or any shares of Series Preferred to be issued upon exercise hereof or any
Common Stock issued upon conversion thereof except under circumstances which
will not result in a violation of the Act. Upon exercise of this Warrant, unless
the Shares being acquired are registered under the Act or an exemption from such
registration is available, the holder hereof shall confirm in writing, by
executing the form attached as Schedule 1 to Exhibit A hereto, that the shares
of Series Preferred so purchased (and any shares of Common Stock issued upon
conversion thereof) are being acquired for investment and not with a view toward
distribution or resale. This Warrant and all shares of Series Preferred issued
upon exercise of this Warrant and all shares of Common Stock issued upon
conversion thereof (unless registered under the Act) shall be stamped or
imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS
RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii)
RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR
(iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER
WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the holder
specifically represents to the Company by acceptance of this Warrant as follows:
(1) The holder is aware of the Company's business affairs and financial
condition, and has acquired information about the Company sufficient to reach an
informed and knowledgeable decision to acquire this Warrant. The holder is
acquiring this Warrant for its own account for investment purposes only and not
with a view to, or for the resale in connection with, any "distribution" thereof
for purposes of the Act.
(2) The holder understands that this Warrant has not been registered under
the Act in reliance upon a specific exemption therefrom, which exemption depends
upon, among other things, the bona fide nature of the holder's investment intent
as expressed herein. In this connection, the holder understands that, in the
view of the SEC, the statutory basis for such exemption may be unavailable if
the holder's representation was predicated solely upon a present intention to
hold the Warrant for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Warrant, or for a period of one year or any other fixed
period in the future.
(3) The holder further understands that this Warrant must be held
indefinitely unless subsequently registered under the Act and any applicable
state securities laws, or unless exemptions from registration are otherwise
available. Moreover, the holder understands that the
5
<PAGE> 6
Company is under no obligation to register this Warrant or the Shares except as
provided in Section 9 hereof.
(4) The holder is aware of the provisions of Rule 144 and 144A, promulgated
under the Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly, from the issuer thereof (or from
an affiliate of such issuer), in a non-public offering subject to the
satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company, the
resale occurring not less than two years after the party has purchased and paid
for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(5) The holder further understands that at the time it wishes to sell this
Warrant there may be no public market upon which to make such a sale, and that,
even if such a public market then exists, the Company may not be satisfying the
current public information requirements of Rule 144 and 144A, and that, in such
event, the holder may be precluded from selling this Warrant or the Shares under
Rule 144 and 144A even if the two-year minimum holding period had been
satisfied.
(6) The holder further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, not withstanding the fact that Rule 144 and 144A are not
exclusive, the Staff of the SEC has expressed its opinion that persons proposing
to sell private placement securities other than in a registered offering and
otherwise than pursuant to Rule 144 and 144A will have a substantial burden of
proof in establishing that an exemption from registration is available for such
offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
(b) Disposition of Warrant or Shares. With respect to any offer, sale
or other disposition of this Warrant or any shares of Series Preferred acquired
pursuant to the exercise of this Warrant prior to registration of such Warrant
or shares, the holder hereof and each subsequent holder of this Warrant agrees
to give written notice to the Company prior thereto, describing briefly the
manner thereof, together with a written opinion of such holder's counsel, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act as then in effect or any federal or state law then in effect) of this
Warrant or such shares of Series Preferred or Common Stock and indicating
whether or not under the Act certificates for this Warrant or such shares of
Series Preferred to be sold or otherwise disposed of require any restrictive
legend as to applicable restrictions on transferability in order to ensure
compliance with such law. Promptly upon receiving such written notice and
reasonably satisfactory opinion, if so requested, the Company, as promptly as
practicable, shall notify such holder that such holder may sell or otherwise
dispose of this Warrant or such shares of Series Preferred or Common Stock, all
in accordance with the
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<PAGE> 7
terms of the notice delivered to the Company. If a determination has been made
pursuant to this subsection (b) that the opinion of counsel for the holder is
not reasonably satisfactory to the Company, the Company shall so notify the
holder promptly after such determination has been made and shall specify in
detail the legal analysis supporting any such conclusion. Notwithstanding the
foregoing, this Warrant or such shares of Series Preferred or Common Stock may,
as to such federal laws, be offered, sold or otherwise disposed of in accordance
with Rule 144 or 144A under the Act, provided that the Company shall have been
furnished with such information as the Company may reasonably request to provide
a reasonable assurance that the provisions of Rule 144 or 144A have been
satisfied. Each certificate representing this Warrant or the shares of Series
Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A)
shall bear a legend as to the applicable restrictions on transferability in
order to ensure compliance with such laws, unless in the aforesaid opinion of
counsel for the holder, such legend is not required in order to ensure
compliance with such laws. The Company may issue stop transfer instructions to
its transfer agent in connection with such restrictions.
(c) Excepted Transfers. Neither any restrictions of any legend
described in this Warrant nor the requirements of Section 7(b) above shall apply
to any transfer without any additional consideration of, or grant of a security
interest in, this Warrant or any part hereof (i) to a partner of the holder if
the holder is a partnership, (ii) by the holder to a partnership of which the
holder is a general partner, or (iii) to any affiliate of the holder if the
holder is a corporation; provided, however, in any such transfer, the transferee
shall on the Company's request agree in writing to be bound by the terms of this
Warrant as if an original signatory hereto.
8. Rights as Shareholders; Information. No holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of Series
Preferred or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. Notwithstanding the foregoing, the Company will
transmit to the holder of this Warrant such information, documents and reports
as are generally distributed to the holders of any class or series of the
securities of the Company concurrently with the distribution thereof to the
shareholders.
9. Registration Rights. The Company covenants and agrees as follows:
9.1 Definitions. For purposes of this Section 9:
(a) The term "Registrable Shares" means (i) the Common Stock
issuable or issued upon conversion of the Series Preferred issuable or issued
upon exercise or conversion of this Warrant or upon exercise or conversion of
the Other Warrants, and (ii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right
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<PAGE> 8
or other security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, such Common Stock or Series
Preferred;
(b) The term "Shareholder" means any person owing or having the
right to acquire Registrable Shares or any assignee thereof in accordance with
Paragraph 9.3 hereof, and
(c) The term "Registration Rights" means the rights set forth in
Section 1 (other than Section 1.2) of the Investor Rights Agreement dated as of
August 17, 1995, by and among the Company and the investors who are signatories
thereto (the "Registration Rights Agreement").
9.2 Grant of Rights. The Company hereby grants to the Shareholders the
Registration Rights. A true and complete copy of the Registration Rights is
attached hereto as Exhibit C. The Company represents and warrants to the
Shareholders that the Company has obtained all consents of parties to the
Registration Rights Agreement and of any other persons that are required in
order for the Registrable Shares to be included in the definition of
"Registrable Securities" and for the Shareholders to be included in the
definition of "Holders," as such terms are used in the Registration Rights
Agreement.
9.3 Assignment of Registration Rights. Notwithstanding any provision
of the Registration Rights Agreement, the rights to cause the Company to
register Registrable Shares pursuant to the Registration Rights and this Section
9 may be assigned by a Shareholder to a transferee or assignee of such
securities provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act.
9.4 No Conflicting Agreements. The Company represents and warrants to
the Shareholders that the Company is not a party to any agreement that conflicts
in any manner with the Shareholders' rights to cause the Company to register
Registrable Shares pursuant to the Registration Rights and this Section 9. The
Company covenants and agrees that it shall not, without the prior written
consent of the Shareholders holding a majority of the outstanding Registrable
Shares, amend, modify or restate the Registration Rights if the rights of the
Shareholders would be subordinated, diminished or otherwise adversely affected
in a different manner than other "Holders" of "Registrable Securities" (as
defined in the Registration Rights Agreement).
9.5 Rights and Obligations Survive Exercise and Expiration of Warrant.
The rights and obligations of the Company, of the holder of this Warrant and of
the Registrable Shares contained in the Registration Rights and this Section 9
shall survive exercise, conversion and expiration of this Warrant.
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<PAGE> 9
10. Additional Rights.
10.1 Secondary Sales. The Company agrees that it will not interfere
with the holder of this Warrant in obtaining liquidity if opportunities to make
secondary sales of the Company's securities become available. To this end, the
Company will promptly provide the holder of this Warrant with the same notice
(if any) as it provides to other holders of the Company's securities of any
offer to acquire from the Company's security holders more than five percent (5%)
of the total voting power of the Company and will not interfere with the holder
in arranging the sale of this Warrant to the person or persons making such
offer.
10.2 Mergers. The Company will provide the holder of this Warrant with
at least 30 days' notice of the terms and conditions of any proposed (i) sale,
lease, exchange, conveyance or other disposition of all or substantially all of
its property or business, or (ii) merger into or consolidation with any other
corporation (other than a wholly-owned subsidiary of the Company), or any other
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of.
10.3 Right to Convert Warrant into Common Stock: Net Issuance.
(a) Right to Convert. In addition to and without limiting the
rights of the holder under the terms of this Warrant, the holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into shares of Series Preferred (or Common Stock if the Series Preferred has
been automatically converted into Common Stock) as provided in this Section 10.3
at any time or from time to time during the term of this Warrant. Upon exercise
of the Conversion Right with respect to a particular number of shares subject to
this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the
holder (without payment by the holder of any exercise price or any cash or other
consideration) (X) that number of shares of fully paid and nonassessable Series
Preferred (or Common Stock if the Series Preferred has been automatically
converted into Common Stock) equal to the quotient obtained by dividing the
value of this Warrant (or the specified portion hereof) on the Conversion Date
(as defined in subsection (b) hereof), which value shall be determined by
subtracting (A) the aggregate Warrant Price of the Converted Warrant Shares
immediately prior to the exercise of the Conversion Right from (B) the aggregate
fair market value of the Converted Warrant Shares issuable upon exercise of this
Warrant (or the specified portion hereof) on the Conversion Date (as herein
defined) by (Y) the fair market value of one share of Series Preferred (or
Common Stock if the Series Preferred has been automatically converted into
Common Stock) on the Conversion Date (as herein defined).
Expressed as a formula, such conversion shall be computed as follows:
X=B - A
-----
Y
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<PAGE> 10
Where: X = the number of shares of Series Preferred (or Common Stock) that may
be issued to holder
Y = the fair market value (FMV) of one share of Series Preferred (or
Common Stock)
A = the aggregate Warrant Price (i.e., Converted Warrant Shares x
Warrant Price)
B = the aggregate FMV (i.e., FMV x Converted Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined).
(b) Method of Exercise. The Conversion Right may be exercised by
the holder by the surrender of this Warrant at the principal office of the
Company together with a notice of exercise substantially in the form attached
hereto as Exhibit A-2, specifying that the holder thereby intends to exercise
the Conversion Right and indicating the number of shares subject to this Warrant
that are being surrendered (referred to in subsection (a) hereof as the
Converted Warrant Shares) in exercise of the Conversion Right. Such conversion
shall be effective upon receipt by the Company of this Warrant together with the
aforesaid notice of exercise, or on such later date as is specified therein (the
"Conversion Date"), and, at the election of the holder hereof, may be made
contingent upon the closing of the sale of the Company's Common Stock to the
public in a public offering pursuant to a Registration Statement under the Act
(a "Public Offering"). Certificates for the shares issuable upon exercise of the
Conversion Right and, if applicable, a new warrant evidencing the balance of the
shares remaining subject to this Warrant, shall be issued as of the Conversion
Date and shall be delivered to the holder within thirty (30) days following the
Conversion Date. Any conversion from Series Preferred to Common Stock shall be
in a ratio of one (1) share of Common Stock for each share of Series Preferred
(as adjusted herein and in the Charter). On the Date of Grant, the each Share of
Series Preferred purchasable under this Warrant is convertible into one share of
Common Stock.
(c) Determination of Fair Market Value. For purposes of this
Section 10.3, "fair market value" of a share of Series Preferred (or Common
Stock if the Series Preferred has been automatically converted into Common
Stock) as of a particular date (the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in connection with
and contingent upon a Public Offering, and if the Company's Registration
Statement relating to such Public Offering ("Registration Statement") has been
declared effective by the SEC, then the initial "Price to Public" specified in
the final prospectus with respect to such offering multiplied by the number of
shares of Common Stock into which each share of Series Preferred is then
convertible.
10
<PAGE> 11
(ii) If the Conversion Right is not exercised in connection
with and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange or the Nasdaq
National Market, the fair market value of the Common Stock shall be deemed to be
the average of the closing or last reported sale prices of the Common Stock on
such exchange or market over the 30-day period ending five business days prior
to the Determination Date, and the fair market value of the Series Preferred
shall be deemed to be such fair market value of the Common Stock multiplied by
the number of shares of Common Stock into which each share of Series Preferred
is then convertible;
(B) If otherwise traded in an over-the-counter market,
the fair market value of the Common Stock shall be deemed to be the average of
the closing ask prices of the Common Stock over the 30-day period ending five
business days prior to the Determination Date, and the fair market value of the
Series Preferred shall be deemed to be such fair market value of the Common
Stock multiplied by the number of shares of Common Stock into which each share
of Series Preferred is then convertible; and
(C) If there is no public market for the Common Stock,
then fair market value shall be determined by mutual agreement of the holder of
this Warrant and the Company, and if the holder and the Company are unable to so
agree, at the Company's sole expense by an investment banker or business
appraiser of national reputation selected by the Company and reasonably
acceptable to the holder of this Warrant.
11. Representations and Warranties. The Company represents and warrants to
the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and the rules of law or principles at
equity governing specific performance, injunctive relief and other equitable
remedies;
(b) The Shares have been duly authorized and reserved for issuance by
the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted to or
imposed upon the Series Preferred and the holders thereof are as set forth in
the Charter, as amended to the Date of the Grant, a true and complete copy of
which has been delivered to the original holder of this Warrant and is attached
hereto as Exhibit B;
11
<PAGE> 12
(d) The shares of Common Stock issuable upon conversion of the Shares
have been duly authorized and reserved and, when issued in accordance with the
terms of the Charter, as amended, will be validly issued, fully paid and
nonassessable; and
(e) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Charter or by-laws, do
not and will not contravene any law, governmental rule or regulation, judgment
or order applicable to the Company, and do not and will not conflict with or
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument of which the Company is a party or by
which it is bound or require the consent or approval of, the giving of notice
to, the registration or filing with or the taking of any action in respect of or
by, any Federal, state or local government authority or agency or other person,
except for the filing of notices pursuant to federal and state securities laws,
which filings will be effected by the time required thereby.
(f) There are no actions, suits, audits, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Company to perform its obligations under this Warrant.
12. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request, communication or other document required
or permitted to be given or delivered to the holder hereof or the Company shall
be delivered, or shall be sent by certified or registered mail, postage prepaid,
to each such holder at its address as shown on the books of the Company or to
the Company at the address indicated therefor on the signature page of this
Warrant.
14. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets, and all of the obligations of
the Company relating to the Series Preferred issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights (including, without limitation, any right
to registration of the shares of Registrable Securities to which the holder
hereof shall continue to be entitled after such exercise or conversion in
accordance with this Warrant; provided, that the failure of the holder hereof to
make any such request shall not affect the continuing obligation of the Company
to the holder hereof in respect of such rights.
12
<PAGE> 13
15. Lost Warrants or Stock Certificates. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
18. Survival of Representations Warranties and Agreements. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.
20. Value. The Company and the holder of this Warrant agree that the value
of this Warrant and the Other Warrants on the Date of Grant is $100.00.
21. Acceptance. Receipt of this Warrant by the holder hereof shall
constitute acceptance of and agreement to the foregoing terms and conditions.
22. No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.
COMBICHEM, INC.
By
---------------------------------
Title
------------------------------
Address: 9050 Camino Santa Fe
San Diego, California 92121
13
<PAGE> 14
EXHIBIT A
NOTICE OF EXERCISE
To: COMBICHEM, INC.
1. The undersigned hereby elects to purchase __________ shares of Series Z
Preferred Stock of COMBICHEM, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below:
---------------------
(Name)
---------------------
---------------------
(Address)
3. The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares. In support
thereof, the undersigned has executed an Investment Representation Statement
attached hereto as Schedule 1.
-----------------------------------
(Signature)
- -----------------------------
(Date)
<PAGE> 15
EXHIBIT A-1
NOTICE OF EXERCISE
To: COMBICHEM, INC. (the "Company")
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S-_, filed __________, 199_ the undersigned hereby elects to
purchase _________ shares of Series Z Preferred Stock of the Company (or such
lesser number of shares as may be sold on behalf of the undersigned at the
Closing) pursuant to the terms of the attached Warrant.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such ___________ shares.
3 . The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $______________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such shares,
the undersigned agrees to deliver the difference to the Company prior to the
Closing.
-----------------------------------
(Signature)
- -----------------------------
(Date)
<PAGE> 16
EXHIBIT A-2
NOTICE OF EXERCISE OF NET ISSUANCE CONVERSION RIGHTS
To: COMBICHEM, INC.
1. The undersigned, the registered holder of the Warrant delivered herewith
(the "Warrant"), hereby elects to exercise the Conversion Right (as defined in
Section 10.3 of the Warrant) as provided herein. ___________ shares subject to
the Warrant are being surrendered hereby in exercise of the Conversion Right.
The number of shares to be issued pursuant to this exercise shall be determined
by reference to the formula in Section 10.3(a) of the Warrant, which requires
the use of the "fair market value" of the Company's stock. As of the
Determination Date (as defined in the Warrant), the "fair market value" of one
share of Series Preferred Stock (or Common Stock if the Series Z Preferred Stock
has been automatically converted into Common Stock) shall be determined in the
manner provided in Section 10.3(c) of the Warrant, which amount has been
determined by the undersigned (or agreed to by the holder of the Warrant and
COMBICHEM, INC.) to be $_____________ per share. Therefore, ___________ shares
are to be issued to the undersigned pursuant to this exercise.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below:
---------------------
(Name)
---------------------
---------------------
(Address)
3. The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares. In support
thereof, the undersigned has executed an Investment Representation Statement
attached hereto as Schedule 1.
-----------------------------------
(Signature)
- -----------------------------
(Date)
<PAGE> 17
SCHEDULE A
Warrantholder Number of Shares
- ------------- ----------------
Silicon Valley Bank 27,581
MMC/GATX Partnership No. 1 85,322
<PAGE> 1
Exhibit 10.18
MASTER LEASE AGREEMENT
COMDISCO, INC. - LESSOR
MASTER LEASE AGREEMENT DATED NOVEMBER 16, 1994, BY AND BETWEEN COMDISCO, INC.
("LESSOR") and COMBICHEM, INC. ("LESSEE").
IN CONSIDERATION OF THE MUTUAL AGREEMENTS DESCRIBED BELOW, THE PARTIES AGREE AS
FOLLOWS (ALL CAPITALIZED TERMS ARE DEFINED IN SECTION 14.19):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Schedule.
In the event of a conflict, the terms of a Schedule prevail over this Master
Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment,
will be bound to its rental obligations for each item of Equipment and the term
of a Schedule will begin and continue through the Initial Term and thereafter
until terminated by either party upon prior written notice received during the
Notice Period. No termination may be effective prior to the expiration of the
Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance, in immediately available funds, on the
first day of each Rent Interval to the payee and at the location specified in
Lessor's invoice. Interim Rent is due and payable when invoiced. If any payment
is not made when due, Lessee will pay interest at the Overdue Rate. Upon
Lessee's execution of each Schedule, Lessee will pay Lessor the Advance
specified on the Schedule. The Advance will be credited towards the final Rent
payment if Lessee is not then in default. No interest will be paid on the
Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment
and disclaims any reliance upon statements made by the Lessor.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee
that, so long as Lessee is not in default, Lessor will not disturb Lessee's
quiet and peaceful possession, and unrestricted use of the Equipment. To the
extent permitted by the manufacturer, Lessor assigns to Lessee during the term
of the Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES NO
OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING,
WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A
PARTICULAR PURPOSE. Lessor is not responsible for any liability, claim, loss,
damage or expense of any kind (including strict liability in tort) caused by the
Equipment except for any loss or damage caused by the negligent acts of Lessor.
In no event is Lessor responsible for special, incidental or consequential
damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the
rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee
authorizes Lessor, as Lessee's agent, to prepare, execute and file in Lessee's
name precautionary Uniform Commercial Code financing statements showing the
interest of the Owner,
<PAGE> 2
Lessor, and any Assignee or Secured Party in the Equipment and to insert serial
numbers in Schedules as appropriate. Lessee will, at its expense, keep the
Equipment free and clear from any liens or encumbrances of any kind (except any
caused by Lessor) and will indemnify and hold Lessor, Owner, any Assignee and
Secured Party harmless from and against any loss caused by Lessee's failure to
do so.
5.2 RELOCATION OR SUBLEASE. Upon prior written consent, Lessee may
relocate Equipment to any location within the continental United States provided
(i) the Equipment will not be used by an entity exempt from federal income tax,
(ii) all additional costs (including any administrative fees, additional taxes
and insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the
Lessor and the Secured Party. Such consent to sublease will be granted if: (i)
Lessee meets the relocation requirements set out above, (ii) the sublease is
expressly subject and subordinate to the terms of the Schedule, (iii) Lessee
assigns its rights in the sublease to Lessor and the Secured Party as additional
collateral and security, (iv) Lessee's obligation to maintain and insure the
Equipment is not altered, (v) all financing statements required to continue the
Secured Party's prior perfected security interest are filed, and (vi) the
sublease is not to a leasing entity affiliated with the manufacturer of the
Equipment described on the Schedule. Lessor acknowledges Lessee's right to
sublease for a term which extends beyond the expiration of the Initial Term. If
Lessee subleases the Equipment for a term extending beyond the expiration of
such Initial Term of the applicable Schedule. Lessee will remain obligated upon
the expiration of the Initial Term to return such Equipment, or, at Lessor's
sole discretion to (i) return Like Equipment or (ii) negotiate a mutually
acceptable lease extension or purchase. If the parties cannot mutually agree
upon the terms of an extension or purchase, the term of the Schedule will extend
upon the original terms and conditions until terminated pursuant to Section 2.
No relocation or sublease will relieve Lessee from any of its obligations
under this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have
been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer
its interest or grant a security interest in each Schedule and/or the Equipment
to a Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other transfer
by Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's
rights, but will not be obligated to perform any of the obligations of Lessor.
The Secured Party will not disturb Lessee's quiet and peaceful possession and
unrestricted use of the Equipment so long as Lessee is not in default and the
Secured Party continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the
Secured Party, despite any defense or claim which it has against Lessor. Lessee
reserves its right to have recourse directly against Lessor for any defense or
claim;
(c) Subject to and without impairment of Lessee's leasehold rights
in the Equipment, Lessee holds the Equipment for the Secured Party to the extent
of the Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts is absolute and unconditional and
is not subject to any abatement, reduction, set-off, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever.
-2-
<PAGE> 3
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state and local taxes on the
capital or the net income of Lessor). Lessor will file all personal property tax
returns for the Equipment and pay all property taxes due. Lessee will reimburse
Lessor or property taxes within thirty (30) days of receipt of an invoice.
7. CARE, USE AND MAINTENANCE; ATTACHMENTS AND RECONFIGURATIONS; AND
INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in
good operating order and appearance, protect the Equipment from deterioration,
other than normal wear and tear, and will not use the Equipment for any purpose
other than that for which it was designed. If commercially available, Lessee
will maintain in force a standard maintenance contract with the manufacturer of
the Equipment, or another party acceptable to Lessor, and will provide Lessor
with a complete copy of that contract. If Lessee has the Equipment maintained by
a party other than the manufacturer, Lessee agrees to pay any costs necessary
for the manufacturer to bring the Equipment to then current release, revision
and engineering change levels, and to re- certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term. The lease term
will continue upon the same terms and conditions until recertification has been
obtained.
7.2 ATTACHMENTS AND RECONFIGURATIONS. Upon receiving the prior written
consent of Lessor, Lessee may reconfigure and install Attachments on the
Equipment. In the event of such a Reconfiguration or Attachment, Lessee will,
upon return of the Equipment, at its expense, restore the Equipment to the
original configuration specified on the Schedule in accordance with the
manufacturer's specifications and in the same operating order, repair and
appearance as when installed (normal wear and tear excluded). If any parts of
the Equipment are removed during a Reconfiguration or Attachment, Lessor may
require Lessee to provide additional security, satisfactory to the Lessor, in
order to ensure performance of Lessee's obligations set forth in this
subsection. Neither Attachments nor parts installed on Equipment in the course
of Reconfiguration will be accessions to the Equipment.
7.3 INSPECTION BY LESSOR. Upon request, Lessee, during reasonable
business hours and subject to Lessee's security requirements, will make the
Equipment and its related log and maintenance records available to Lessor for
inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE.
Lessee hereby represents, warrants and covenants that with respect to the
Master Lease and each Schedule executed hereunder:
(a) The Lessee is a corporation duly organized and validly
existing in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to do business in each jurisdiction (including
the jurisdiction where the Equipment is, or is to be, located) where its
ownership or lease of property or the conduct of its business requires such
qualification; and has full corporate power and authority to hold property under
the Master Lease and each Schedule and to enter into and perform its obligations
under such Lease.
(b) The execution and delivery by the Lessee of the Master Lease
and each Schedule and its performance thereunder have been duly authorized by
all necessary corporate action on the part of the Lessee, and the Master Lease
and each Schedule are not inconsistent with the Lessee's Certificate of
Incorporation or Bylaws, do not contravene any law or governmental rule,
regulation or order applicable to it, do not and will not contravene any
provision of, or constitute a default under any indenture, mortgage, contract or
other instrument to which it is a party or by which it is bound, and the Master
Lease and each Schedule constitute legal, valid and binding agreements of the
Lessee, enforceable in accordance with their terms.
-3-
<PAGE> 4
(c) There are no actions, suits, proceedings or patent claims
pending or, to the knowledge of the Lessee, threatened against or affecting the
Lessee in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Lessee to perform its obligations under the Master Lease and each
Schedule.
(d) The Equipment is personal property and when subjected to use
by the Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations,
absolute or contingent (individually or in the aggregate), except the
liabilities and obligations of the Lessee as set forth in the Financial
Statements and liabilities and obligations which have occurred in the ordinary
course of business, and which have not been, in any case or in the aggregate,
materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns,
possesses, has access to, or can become licensed on reasonable terms under all
patents, patent applications, trademarks, trade names, inventions, franchises,
licenses, permits, computer software and copyrights necessary for the operations
of its business as now conducted, with no known infringement of, or conflict
with, the rights of others.
(g) All material contracts, agreements and instruments to which
the Lessee is a party are in full force and effect in all material respects, and
are valid, binding and enforceable by the Lessee in accordance with their
respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Schedule, Lessee shall,
pursuant to Lessor's instructions and at Lessee's full expense (including,
without limitation, expenses of transportation and in-transit insurance), return
the Equipment to Lessor in the same operating order, repair, condition and
appearance as when received, less normal depreciation and wear and tear, Lessee
shall return the Equipment to Lessor at its address set forth herein or at such
other address within the continental United States as directed by Lessor,
provided, however, that Lessee's expense shall be limited to the cost of
returning the equipment to Lessor's address as set forth herein. During the
period subsequent receipt of a notice under Section 2, Lessor may demonstrate
the Equipment's operation in place and Lessee will supply any of its personnel
as may reasonably be required to assist in the demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest.
Lessee will keep all Equipment free from any other marking or labeling which
might be interpreted as a claim of ownership.
11. INDEMNITY.
Lessee will indemnify and hold Lessor, any Assignee and any Secured Party
harmless from and against any and all claims, costs, expenses, damages and
liabilities, including reasonable Attorneys' fees, arising out of the ownership
(for strict liability in tort only), selection, possession, leasing, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
-4-
<PAGE> 5
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee
relieves Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee wilt furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty
Loss, Lessee will provide written notice of that loss to Lessor and Lessee will,
at Lessor's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing, Lessee's obligation to pay further Rent for the item of
Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events
of Default constitutes a default under a Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by
Lessee when due if that failure continues for five (5) days after written
notice: or
(b) Lessee's failure to perform any other term or condition of the
Schedule or the material inaccuracy of any representation or warranty made by
the Lessee in the Schedule or in any document or certificate furnished to the
Lessor hereunder if that failure or inaccuracy continues for ten (10) days after
written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the
failure by Lessee to pay its debts when due, the insolvency of Lessee, the
filing by Lessee or the filing against Lessee of any petition under any
bankruptcy or insolvency law or for the appointment of a trustee or other
officer with similar powers, the adjudication of Lessee as insolvent, the
liquidation of Lessee, or the taking of any action for the purpose of the
foregoing; or
(d) The occurrence of an Event of Default under any Schedule or
other agreement between Lessee and Lessor or its Assignee or Secured Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the
applicable Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including
Default Costs;
(c) with notice and demand, recover all sums due and accelerate
and recover the present value of the remaining payment stream of all Rent due
under the defaulted Schedule (discounted at the same rate of interest at which
such defaulted Schedule was discounted with a Secured Party plus any prepayment
fees charged to Lessor by the Secured Party or, if there is no Secured Party,
then discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
-5-
<PAGE> 6
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter on Lessee's premises to remove and
repossess the Equipment without being liable to Lessee for damages due to the
repossession, except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF Lessor's RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, lease or other disposition of the Equipment are defined
as either:
(a) if sold or otherwise disposed of, the cash proceeds less the
Fair Market Value of the Equipment at the expiration of the Initial Term less
the Default Costs; or
(b) if leased, the present value (discounted at three points over
the prime rate as referenced in the Wall Street Journal at the time of the
mitigation) of the rentals for a term not to exceed the Initial Term, less the
Default Costs.
Any proceeds will be applied against liquidated damages and any other sums
due to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor
may recover, the amount by which the proceeds are less than the liquidated
damages and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 DELETED.
14.2 FINANCIAL STATEMENTS. Lessee will provide to Lessor the financial
statements specified in this Section, prepared in accordance with generally
accepted accounting principles, consistently applied (the "Financial
Statements"); provided, however, after the effective date of the initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission, to be provided no less
frequently than quarterly. Lessee will provide to Lessor (i) as soon as
practicable (within thirty (30) days) after the end of each month, the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows, certified by Lessee's Chief Executive or Financial Officer to be
true and correct, and (ii) as soon as practicable (and in any event within
ninety (90) days) after the end of each fiscal year, audited balance sheets as
of the end of such year (consolidated if applicable), and related statements of
income or loss, retained earnings or deficit and changes in the financial
position and capital structure of Lessee for such year, setting forth in
comparative form the corresponding figures for the preceding fiscal year, and
accompanied by an audit report and opinion of the independent certified public
accountants selected by Lessee. Lessee will promptly furnish to Lessor any
additional information (including but not limited to tax returns, income
statements, balance sheets, and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing ability to meet
financial obligations.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee,
Lessor will not be obligated to lease any Equipment which would have a
Commencement Date after said notice if: (i) Lessee is in
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<PAGE> 7
default under this Master Lease or any Schedule; (ii) Lessee is in default under
any loan agreement, the result of which would allow the lender or any secured
party to demand immediate payment of the indebtedness; (iii) there is a material
adverse change in Lessee's credit standing; or (iv) Lessor determines (in
reasonable good faith) that Lessee will be unable to perform its obligations
under this Master Lease.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any
proposed Merger at least twenty (20) days prior to the closing date. Lessor may,
in its discretion, either (i) consent to the assignment of the Master Lease and
all relevant Schedules to the successor entity, or (ii) terminate the Master
Lease and all relevant Schedules. If Lessor elects to consent to the assignment,
Lessee and its successor will sign the assignment documentation provided by
Lessor. If Lessor elects to terminate the Master Lease and all relevant
Schedules, then Lessee will pay Lessor all amounts then due and owing and a
termination fee equal to the present value (discounted at 6%) of the remaining
Rent for the balance of the Initial Term(s) of all Schedules , and will return
the Equipment in accordance with Section 9.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules
supersede all other oral or written agreements or understandings between the
parties concerning the Equipment including, for example, purchase orders. ANY
AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE MAY ONLY BE ACCOMPLISHED BY A
WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate or
be construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the
benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but
not limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule or in any document delivered in
connection with those agreements are for the benefit of Lessor and any Assignee
or Secured Party and survive the execution, delivery, expiration or termination
of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party
by the other will be given in writing and deemed received upon the earlier of
actual receipt or three days after mailing if mailed postage prepaid by regular
or airmail to Lessor (to the attention of "Lease Administrator") or Lessee, at
the address set out in the Schedule or, one day after it is sent by courier or
on the same day as sent via facsimile transmission, provided that the original
is sent by personal delivery or mail by the receiving party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL
HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE
OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master
Lease or any Schedule is for any reason held invalid, illegal or unenforceable,
the remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
-7-
<PAGE> 8
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in
any number of counterparts, each of which will be deemed an original , but all
such counterparts together constitute one and the same instrument. If Lessor
grants a security interest in all or any part a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate".
14.13 NONSPECIFIED FEATURES AND LICENSED PRODUCTS. If the Equipment is
supplied from Lessor's inventory and contains any features not specified in the
Schedule, Lessee grants Lessor the right to remove any such features. Any
removal will be performed by the manufacturer or another party acceptable to
Lessee, upon the request of Lessor, at a time convenient to Lessee, provided
that Lessee will not unreasonably delay the removal of such features.
Lessee will obtain no title to Licensed Products which will at all times
remain the property of the owner of the Licensed Products. A license from the
owner may be required and it is Lessee's responsibility to obtain any required
license before the use of the Licensed Products. Lessee agrees to treat the
Licensed Products as confidential information of the owner, to observe all
copyright restrictions, and not to reproduce or sell the Licensed Products.
14.14 ADDITIONAL DOCUMENTS. Lessee will, upon execution of this Master
Lease and as may be requested thereafter, provide Lessor with a secretary's
certificate of incumbency and authority and any other documents reasonably
requested by Lessor. Upon the execution of each Schedule with a purchase price
in excess of $1,000,000. Lessee will provide Lessor with an opinion from
Lessee's counsel in a form acceptable to Lessor regarding the representations
and warranties in Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with
the other by electronic means under mutually agreeable terms.
14.16 LESSOR'S RIGHT TO MATCH. Lessee's rights under Section 5.2 and 7.2
are subject to Lessor's right to match any sublease or upgrade proposed by a
third party. Lessee will provide Lessor with the terms of the third party offer
and Lessor will have three (3) business days to match the offer. Lessee will
obtain such upgrade from or sublease the Equipment to Lessor if Lessor has
timely matched the third party offer.
14.17 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.18 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby
agrees that Lessor shall not, by virtue of its entering into this Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Lease.
14.19 DEFINITIONS.
Advance - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
Attachment - means any accessory, equipment or device and the installation
thereof that does not impair the original unction or use of the Equipment and is
capable of being removed without causing material damage to the Equipment and is
not an accession to the Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
-8-
<PAGE> 9
Casualty Value - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Certificate - means the Lessor provided certificate which must be
signed by Lessee within ten (10) days of the Commencement Date as requested by
Lessor.
Commencement Date - is defined in each Schedule.
Default Costs - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
Equipment - means the property described on a Schedule and any replacement for
that property required or permitted by this Master Lease or a Schedule but not
including any Attachment.
Event of Default - means the events described in Subsection 13.1.
Fair Market Value - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to Sell.
Initial Term - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
Installation Date - means the day on which Equipment is installed and qualified
for a commercially available manufacturer's standard maintenance contract or
warranty coverage, if available.
Interim Rent - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
Licensed Products - means any software or other licensed products attached to
the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
Like Part - means a substituted part which is lien free and of the same
manufacturer and part number as the removed part, and which when installed on
the Equipment will be eligible for maintenance coverage with the manufacturer of
the Equipment.
Merger - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets of the Lessee to any other person or entity or any stock acquisition of
the Lessee by any other person or entity.
Notice Period - means the time period described in a Schedule during which
Lessee may give Lessor notice of the termination of the term of that Schedule.
Overdue Rate - means the lesser of five percent (5%) of the payment due or the
maximum rate permitted by the law or the state where the Equipment is located.
Owner - means the owner of Equipment.
Reconfiguration - means any change to Equipment that would upgrade or downgrade
the performance capabilities or the Equipment in any way.
-9-
<PAGE> 10
Rent - means the rent, including Interim Rent. Lessee will pay for each item of
Equipment expressed in a Schedule either as a specific amount or an amount equal
to the amount which Lessor pays for an item of Equipment Multiplied by a lease
rate factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
Rent Interval - means a full calendar month or quarter as indicated on a
Schedule.
Schedule - means an Equipment Schedule which incorporates all of the terms and
conditions of this Master Lease and, for purposes of Section 14.12, its
associated Commencement Certificate(s).
Secured Party - means an entity to whom Lessor has granted a security interest
in a Schedule and related Equipment for the purpose of securing a loan.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on
or as of the day and year first above written.
COMBICHEM, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Robert A. Curtis By: /s/ Illegible
--------------------------- --------------------------------
Title: President & CEO Title: Illegible
------------------------ -----------------------------
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<PAGE> 11
EXHIBIT A
(MULTIPLE MONTHLY DELIVERY)
SCHEDULE NO. VL-1 DATED AS OF November 16, 1994
TO MASTER LEASE AGREEMENT DATED AS OF November 16, 1994 ("MASTER LEASE")
LESSEE: CombiChem, Inc. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
Gail Erwin
Controller 6111 North River Road
(619) 677-6077 Rosemont, Illinois 60018
Fax (619) 452-8799 Attn: Capital Equipment Lease
dministration
Address for Notices:
10975 Torreyana Road
Suite 230
San Diego, CA 92121
Attn.:
Central Billing Location: PAYING AGENT:
Same as above Comdisco, Inc.
P.O. Box 91744
Attn.: Chicago, Illinois 60693
Lessee Reference No.: ___________________
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
11025 N. Torrey Pines Road
La Jolla, CA 92037
Lease Rate Factor: 2.469%
Attn.:
EQUIPMENT (as defined below): Advance:
Phase I: $5,555.25
Phase II thru V: $1,234.50
Phase VI: $1,851.75
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- ---- ---- ------------ ------------- ----------- ------ ----
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period November 16, 1994 through November
15, 1995, for which Lessor receives vendor invoices approved for payment,
up to an aggregate purchase price of $1,000,000 available in the phases
provided below:
<PAGE> 12
Phase I $450,000
Phase II $100,000
Phase III $100,000
Phase IV $100,000
Phase V $100,000
Phase VI $150,000
Phase I shall be available prior to next round of equity and Phases II-VI
shall be available after the next round of equity of at least $1,500,000.
Notwithstanding anything to the contrary contained in this Lease, if
Lessee closes a preferred equity financing (excluding bridge debt
financing) equal to or greater than $1,500,000 ("Next Round") on or before
January 31, 1995, then Lessor is firmly committed to make Phases II
through VI available for the period described above, provided no Event of
Default occurs. If Lessee does not close the Next Round by January 31,
1995, Lessor's commitment to make Phase II - VI funds available will be at
Lessor's discretion. Equipment shall not include upgrades thereto and
further excludes, leasehold improvements, installation costs and delivery
costs, rolling stock, special tooling, custom equipment, "stand-alone"
software, application software bundled into computer hardware, hand held
items, molds and fungible items. In no event shall any furniture exceed
ten percent (10%) of Lessor's aggregate cost hereunder.
1. NOTICE PERIOD: Not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no Later than December 16,
1994 *. Lessor will not perform a Sale-Leaseback Transaction for any
request or accompanying Equipment ownership documents which arrive
after the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to: (1)
Lessor prior approval of the Equipment; and (2) if approved, at
Lessor's actual net appraised Equipment value pursuant to the
schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT PERCENT OF ORIGINAL MANUFACTURER'S
MANUFACTURER'S SHIP DATE NET EQUIPMENT COST PAID BY LESSOR
------------------------ ----------------------------------
<S> <C>
Between 9/17/94 and 12/16/94 100%
Between 7/17/94 and 9/16/94 80%
Between 4/17/94 and 7/16/94 70%
Between 1/17/94 and 4/16/94 65%
Between 10/17/93 and 1/16/94 60%
</TABLE>
<PAGE> 13
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
Invoices containing the Equipment location, description, serial number and cost,
the Installation Date and Lessee's signature. Lessor will summarize all Invoices
and/or IAFs received in the same calendar month provided however that each
Commencement Certificate must cover equipment with an equipment cost of at Least
$10,000 or Lessor shall include such equipment on the Commencement Certificate
for the next succeeding month into a Commencement Certificate in the form
attached to this Schedule as Exhibit 1 and the Initial Term will begin the first
day of the calendar month thereafter. Each Commencement Certificate will
incorporate the terms and conditions of the Master Lease and this Schedule and
will constitute a separate Schedule. Notwithstanding the foregoing, if the
Equipment pertains to Sale-Leaseback Equipment the Commencement Date will be the
date Lessor tenders the purchase price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least ninety days (90) days written
notice prior to the expiration of the Initial Term. In such event, the rent to
be paid during said extended period shall be mutually agreed upon and if the
parties cannot mutually agree, then the Lease shall continue in full force and
effect pursuant to the existing terms and conditions until terminated in
accordance with its terms. This Schedule will continue in effect following said
extended period until terminated by either party upon not less than ninety (90)
days prior written notice, which notice shall be effective as of the Rent
Interval next following receipt.
5. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety days (90) days prior to the expiration of the Initial Term, Lessee will
have the option at the expiration of the Initial Term of this Schedule to
purchase all, but not less than all, of the Equipment listed herein for a
purchase price not to exceed fifteen percent (15%) of the equipment's original
cost and upon terms and conditions to be mutually agreed upon by the parties
following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at Least five (5) days
before the expiration date of the Initial Term. Title to the Equipment shall
automatically pass to Lessee upon payment in full of the purchase price but, in
no event, earlier than the expiration of the fixed Initial Term. If the parties
are unable to agree on the purchase price or the terms and conditions with
respect to said purchase, then the Lease with respect to this Equipment shall
remain in full force and effect, unless terminated by either party. It is agreed
and understood that Lessor is retaining a purchase money security interest in
the Equipment listed herein and this Schedule shall constitute a Security
Agreement under the Uniform Commercial Code of the state in which the Equipment
is located. Lessor and Lessee agree that for purposes of this paragraph, any
licensed software will not be considered part of the Equipment.
6. ENVIRONMENTAL CONDITION
a. Indemnification. Lessee shall fully and promptly pay, perform,
discharge, defend, indemnify and hold harmless Lessor and its Affiliates
(defined below), successors and assigns, directors, officers, employees
and agents from and against any Environmental Claim or Environmental Loss
(defined below).
b. Lessee Cooperation. In the event of an Environmental Claim, Lessee
shall, upon request, immediately provide Lessor with copies of all
correspondence reports, notices, orders, findings,
<PAGE> 14
declarations and other materials pertinent to the Lessee's compliance with
and requirements of any Environmental Law (defined below).
c. Lessee Insurance. If Lessee is required by law to obtain an
environmental liability policy, the Lessee shall name Lessor as an
additional insured on its environmental liability insurance policy.
d. Adverse Environmental Condition - means (i) the existence or the
continuation of the existence, of an Environmental Emission (including,
without limitation, a sudden or non-sudden accidental or non- accidental
Environmental Emission), of or exposure to, any substance, chemical,
material, pollutant, contaminant, odor or audible noise or other release
or emission in, into or onto the environment (including without
limitation, the air, ground, water or any surface) at, in, by, from or
related to any Equipment, (ii) the environmental aspect of the
transportation, storage, treatment or disposal of materials in connection
with the operation of any Equipment, or (iii) the violation, or alleged
violation of any statutes, ordinances, orders, rules, regulations, permits
or licenses of, by or from any governmental authority, agency or court
relating to environmental matters connected with any Equipment.
e. Affiliate - means any entity that is directly or indirectly, through
one or more intermediaries, controls or is controlled by, or is under
common control with Lessor.
f. Environmental Claim - means any accusation, allegation, notice of
violation, claim, demand, abatement or other order or direction
(conditional or otherwise) by an governmental authority or any Person for
personal injury (including sickness, disease, or death), tangible or
intangible property damage, damage to the environment or natural
resources, nuisance, pollution, contamination or other adverse effects on
the environment, or for fines, penalties or restrictions, resulting from
or based upon any Adverse Environmental Condition (defined above).
g. Environmental Emission - means any actual or threatened release,
spill, omission, leaking, pumping, injection, deposition, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment, or into or out of any of the Equipment, including, without
limitation, the movement of any Contaminant or other substance through or
in the air, soil, surface water, groundwater or property.
h. Environmental Law - means any federal, foreign, state or local law,
rule or regulation pertaining to the protection of the environment,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. 1251, et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the
Clean Air Act (42 U.S.C. 7401 et seq.), the Toxic Substances Control Act
(15 U.S.C. 2601 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. 1361 et seq.), and the Occupational Safety and
Health Act (10 U.S.C. 651 et seq.), as these laws have been amended or
supplemented, and any analogous foreign, state or local statutes, and the
regulations promulgated pursuant thereto.
i. Environmental Loss - means any loss, cost, damage, liability,
deficiency, fine, penalty or expense (including, without limitation,
reasonable attorneys' fees, engineering and other professional or expert
fees), investigation, removal, cleanup and remedial costs (voluntarily or
involuntarily incurred) and damages to, loss of the use of or decrease in
value of the Equipment arising out of or related to any Adverse
Environmental Condition.
j. Person - means any individual, partnership, corporation, trust,
unincorporated organization, government or department or agency thereof
and any other entity.
<PAGE> 15
7. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to this
Schedule are hereby modified and amended as follows:
A. Section 5.2, "Relocation or Sublease".
In the first Line insert "Lessor's" before "prior written consent" and
insert "which shall not be unreasonably withheld" before "Lessee may
relocate Equipment".
B. Section 5.3, "Assignment by Lessor".
In paragraph A line 3 after "so long as" insert "there has not been an
Event of Default,".
C. Section 6.2, "Taxes and Fees".
Delete the parenthetical phrase in the second line of the paragraph.
D. Section 8, "Representations and Warranties of Lessee".
Paragraph (d) insert at the beginning of the sentence "To Lessee's
knowledge,".
Paragraph (f) add to the end of the paragraph 11", the infringement or
conflict of which would have a material adverse effect on the Lessee."
E. Section 9, "Delivery and Return of Equipment".
Delete this section in its entirety and replace it with the following:
Delivery and Return of Equipment. Lessee assumes the full expense of
transportation to its initial location, installation, deinstallation, and
return to a location within the continental United States (including
without limitation, the expense of in-transit insurance) all pursuant to
Lessee's instructions and manufacturer's specifications. Regarding
deinstallation, Lessee will assure that the Equipment is deinstalled by
the manufacturer in accordance with the manufacturer's recommended
procedures and any Environmental Law, and returned with a Certificate of
Decontamination in the same operating order, repair, condition and
appearance as when originally installed (less normal wear and tear and
depreciation) meeting all original Equipment manufacturer's specifications
for continued manufacturer's maintenance, and accompanied by all
associated documents, manuals, maintenance records for the duration of the
Initial Term, spare parts and accessories. In connection with
deinstallation, any contaminant removed from the Equipment will be removed
and transported by licensed waste removal transporter who shall name
Lessor as additional insured on its environmental liability policy. During
the period subsequent to the receipt of a termination notice under Section
2, Provided Lessor provides Lessee with reasonably adequate notice and
Lessee approves the time for any such demonstration, Lessor may, after
providing reasonable notice to Lessee demonstrate the Equipment's
operation in place and Lessee will supply any of its personnel as may
reasonably be required to assist in the demonstrations.
F. Section 12, "Risk of Loss".
In the second paragraph add the following to the end of the paragraph "If
Lessor agrees to accept like equipment as replacement for the loss or
destruction of the equipment, Lessee will not be obligated to replace the
Equipment for a cost greater than the Casualty Value, and Lessee shall be
entitled to retain all of the insurance proceeds received to reimburse
Lessee for its cost to replace the Equipment."
G. Section 13.1, "Default".
<PAGE> 16
Paragraph (a) insert the word "business" before the word "days"; insert
"Lessee's receipt of" before "written notice"; add to the end of the
sentence "of such non-payment".
Paragraph (b) in the first Line insert "material" before the word "term".
In the last line, insert "Lessee's receipt of" before "written notice".
Paragraph (c) after the phrase "failure by Lessee to pay its debts when
due" insert "where such past due amounts exceed $50,000 in the aggregate
or any lender has the right to accelerate more than $50,000 of debt", in
the third Line after the words "bankruptcy or insolvency law" insert "if
such is not removed within sixty days (60)."
H. Section 14.3, "Obligations to Lease Additional Equipment".
In the first line insert "written" before the word "notice". In Line 3
clause (i) after "master lease or any schedule" insert "and such default
is not cured within five (5) days of written notice".
Add to the end of the paragraph: "If Lessor's obligations to lease
additional Equipment are suspended hereunder, Lessee may request a
restoration of such leaseline upon demonstration to Lessor to Lessor's
satisfaction that Lessee has cured the defect which gave rise to the
suspension of Lessor's lease obligation."
I. Section 14.4 "Merger and Sale Provisions".
The second sentence of Section 14.4 of the Master Lease shall be deleted
in its entirety and replaced with the following; "Lessor shall have the
right to consent to the assignment of the Master Lease and all relevant
Schedules to the successor entity, which consent shall not be unreasonably
withheld. If such consent is reasonably withheld, then Lessor shall have
the option to terminate the Master Lease and all relevant Schedules."
J. Section 14.7, "Binding Nature".
Add the end of the paragraph "without the prior written consent of Lessor
which shall not be unreasonably withheld."
K. Section 14.8, "Survival of Obligations".
In the Last Line, "execution, delivery" shall be revised to read
"execution and delivery", delete "expiration or termination". Add to the
end of the section: "Sections 7.1, 9, and 11, shall survive expiration or
termination of this Master Lease until all duties thereunder have been
discharged by the parties."
L. Section 14.9, "Notices".
In the Last Line delete the word "receiving" and replace with the word
"disclosing" before the word "party".
M. Section 14.10, "Applicable Law".
Delete "Illinois" and replace with "California" wherever it appears.
N. Section 14.17, "LandLord/Mortgagee Waiver".
After "Lessee agrees to" insert "use reasonable efforts, (which shall not
include additional monetary payment to Landlord other than deminimis
amounts), to" before "provide Lessor with".
O. Section 14.19, "Definitions".
<PAGE> 17
Delete Interim Rent definition and replace with:
"Interim Rent - means a daily rate of .0278% of Lessor's Cost for each day
from the Commencement Date through but not including the first day of the
first full Rent Interval included in the Initial Term."
Master Lease: This Schedule is issued pursuant to the Master Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Master Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without Limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
COMBICHEM, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Robert A. Curtis By: /s/ Illegible
--------------------------- ------------------------------
Title: President & CEO Title: Illegible
------------------------ ---------------------------
Date: Nov. 23, 1994 Date: 12/5/94
------------------------ ----------------------------
<PAGE> 18
EXHIBIT 1
COMMENCEMENT CERTIFICATE
This Certificate dated is executed pursuant to Schedule No. to the Master
Lease Agreement dated between Comdisco, Inc. ("Lessor") and ("Lessee"). All of
the terms, conditions, representations and warranties of the Master Lease and
Schedule No. are incorporated herein and made a part hereof and this
Commencement Certificate constitutes a Schedule for the Equipment described
below.
1. Equipment:
Equipment
Qty Mfgr Type/Model Serial # Location
--- ---- ---------- -------- --------
(See attached Invoices)
2. Installation Date: (See attached Invoices)
3. Initial Term Starts on:
4. Total Equipment Cost:
5. Rent:
6. Representations of Lessee:
Each item of Equipment has been delivered to the location indicated above,
tested, inspected, found to be in good working order and accepted by the
Lessee on its Installation Date.
<PAGE> 19
EXHIBIT A
(MULTIPLE MONTHLY DELIVERY)
SCHEDULE NO. VL-2 DATED AS OF April 15, 1996
----
TO MASTER LEASE AGREEMENT DATED AS OF November 16, 1994 ("MASTER LEASE")
LESSEE: CombiChem, Inc. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
Controller 6111 North River Road
Ph. (619) 530-0484 Rosemont, Illinois 60018
Fax (619) 530-9998 Attn: Capital Equipment Lease
Administration
Address for Notices:
9050 Camino Santa Fe
San Diego, CA 92121
Attn.:
Central Billing Location: PAYING AGENT:
Same as above Comdisco, Inc.
P.O. Box 91744
Attn.: Chicago, Illinois 60693
Lessee Reference No.: _______________________
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
Same as above
Lease Rate Factor: 2.425%
Attn.:
EQUIPMENT (as defined below): Advance: $24,250
Item Machine Type/ Serial
No. Qty. Manufacturer Feature Description Number Rent
- --- ---- ------------ ------------ ----------- ------ ----
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period April 15, 1996 through December 15, 1996
("Equipment Delivery Period"), for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $1,000,000
("Commitment Amount"); excluding custom use equipment, leasehold improvements,
installation costs and delivery costs, rolling stock, special tooling,
"stand-alone" software, application software bundled into computer hardware,
hand held items, molds and fungible items.
1. NOTICE PERIOD. Not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
2. EQUIPMENT PURCHASE
<PAGE> 20
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than May 15,1996*.
Lessor will not perform a Sale-Leaseback Transaction for any request
or accompanying Equipment ownership documents which arrive after the
date marked above by an asterisk (*). Further, any sale-leaseback
Equipment will be placed on lease subject to: (1) Lessor prior
approval of the Equipment; and (2) if approved, at Lessor's actual
net appraised Equipment value pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ---------------------------------
<S> <C>
Between 02/15/95 and 05/15/96 100%
Between 12/16/95 and 02/14/96 80%
Between 09/16/95 and 12/15/95 70%
</TABLE>
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
Invoices containing the Equipment location, description, serial number and cost,
the Installation Date and Lessee's signature. Lessor will summarize all Invoices
and/or IAFs received in the same calendar month provided however that each
Commencement Certificate must cover equipment with an equipment cost of at least
$10,000 or Lessor shall include such equipment on the Commencement Certificate
for the next succeeding month into a Commencement Certificate in the form
attached to this Schedule as Exhibit 1 and the Initial Term will begin the first
day of the calendar month thereafter. Each Commencement Certificate will
incorporate the terms and conditions of the Master Lease and this Schedule and
will constitute a separate Schedule. Notwithstanding the foregoing, if the
Equipment pertains to Sale-Leaseback Equipment the Commencement Date will be the
date Lessor tenders the purchase price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least ninety days (90) days written
notice prior to the expiration of the Initial Term. In such event, the rent to
be paid during said extended period shall be mutually agreed upon and if the
parties cannot mutually agree, then the Lease shall continue in full force and
effect pursuant to the existing terms and conditions until terminated in
accordance with its terms. This Schedule will continue in effect following said
extended period until terminated by either party upon not less than ninety (90)
days prior written notice, which notice shall be effective as of the Rent
Interval next following receipt.
<PAGE> 21
5. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety days (90) days prior to the expiration of the Initial Term, Lessee will
have the option at the expiration of the Initial Term of this Schedule to
purchase all, but not less than all, of the Equipment listed herein for a
purchase price not to exceed twenty percent (20%) of the equipment's original
cost and upon terms and conditions to be mutually agreed upon by the parties
following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least five (5) days
before the expiration date of the Initial Term. Title to the Equipment shall
automatically pass to Lessee upon payment in full of the purchase price but, in
no event, earlier than the expiration of the fixed Initial Term. If the parties
are unable to agree on the purchase price or the terms and conditions with
respect to said purchase, then the Lease with respect to this Equipment shall
remain in full force and effect, unless terminated by either party. It is agreed
and understood that Lessor is retaining a purchase money security interest in
the Equipment listed herein and this Schedule shall constitute a Security
Agreement under the Uniform Commercial Code of the state in which the Equipment
is located. Lessor and Lessee agree that for purposes of this paragraph, any
licensed software will not be considered part of the Equipment.
6. ENVIRONMENTAL CONDITION
a. Indemnification. Lessee shall fully and promptly pay, perform,
discharge, defend, indemnify and hold harmless Lessor and its Affiliates
(defined below) , successors and assigns, directors, officers, employees
and agents from and against any Environmental Claim or Environmental Loss
(defined below).
b. Lessee Cooperation. In the event of an Environmental Claim, Lessee
shall, upon request, immediately provide Lessor with copies of all
correspondence reports, notices, orders, findings, declarations and other
materials pertinent to the Lessee's compliance with and requirements of
any Environmental Law (defined below) .
c. Lessee Insurance. If Lessee is required by law to obtain an
environmental liability policy, the Lessee shall name Lessor as an
additional insured on its environmental liability insurance policy.
d. Adverse Environmental Condition - means (i) the existence or the
continuation of the existence, of an Environmental Emission (including,
without limitation, a sudden or non-sudden accidental or non- accidental
Environmental Emission), of or exposure to, any substance, chemical,
material, pollutant, contaminant, odor or audible noise or other release
or emission in, into or onto the environment (including without
limitation, the air, ground, water or any surface) at, in, by, from or
related to any Equipment, (ii) the environmental aspect of the
transportation, storage, treatment or disposal of materials in connection
with the operation of any Equipment, or (iii) the violation, or alleged
violation of any statutes, ordinances, orders, rules, regulations, permits
or licenses of, by or from any governmental authority, agency or court
relating to environmental matters connected with any Equipment.
e. Affiliate - means any entity that is directly or indirectly, through
one or more intermediaries, controls or is controlled by, or is under
common control with Lessor.
f. Environmental Claim - means any accusation, allegation, notice of
violation, claim, demand, abatement or other order or direction
(conditional or otherwise) by an governmental authority or any Person for
personal injury (including sickness, disease, or death), tangible or
intangible property damage, damage to the environment or natural
resources, nuisance, pollution, contamination or other adverse effects on
the environment, or for fines, penalties or restrictions, resulting from
or based upon any Adverse Environmental Condition (defined above).
g. Environmental Emission - means any actual or threatened release,
spill, omission, leaking, pumping, injection, deposition, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment, or into or out of any of the Equipment, including, without
limitation, the
<PAGE> 22
\ movement of any Contaminant or other substance through or in the air,
soil, surface water, groundwater or property.
h. Environmental Law - means any federal, foreign, state or local law,
rule or regulation pertaining to the protection of the environment,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. 1251, et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the
Clean Air Act (42 U.S.C. 7401 et seq.), the Toxic Substances Control Act
(15 U.S.C. 2601 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. 1361 et seq.), and the Occupational Safety and
Health Act (10 U.S.C. 651 et seq.), as these laws have been amended or
supplemented, and any analogous foreign, state or local statutes, and the
regulations promulgated pursuant thereto.
i. Environmental Loss - means any loss, cost, damage, liability,
deficiency, fine, penalty or expense (including, without limitation,
reasonable attorneys' fees, engineering and other professional or expert
fees), investigation, removal, cleanup and remedial costs (voluntarily or
involuntarily incurred) and damages to, loss of the use of or decrease in
value of the Equipment arising out of or related to any Adverse
Environmental Condition.
j. Person - means any individual, partnership, corporation, trust,
unincorporated organization, government or department or agency thereof
and any other entity.
7. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to this
Schedule are hereby modified and amended as follows:
A. Section 5.2, "Relocation or Sublease".
In the first line insert "Lessor's" before "prior written consent" and
insert "which shall not be unreasonably withheld" before "Lessee may
relocate Equipment".
B. Section 5.3, "Assignment by Lessor".
In paragraph A line 3 after "so long as" insert "there has not been an
Event of Default,".
C. Section 6.2, "Taxes and Fees".
Delete the parenthetical phrase in the second line of the paragraph.
D. Section 8, "Representations and Warranties of Lessee".
Paragraph (d) insert at the beginning of the sentence "To Lessee's
knowledge,".
Paragraph (f) add to the end of the paragraph", the infringement or
conflict of which would have a material adverse effect on the Lessee."
E. Section 9, "Delivery and Return of Equipment".
Delete this section in its entirety and replace it with the following:
DELIVERY AND RETURN OF EQUIPMENT. Lessee assumes the full expense of
transportation to its initial location, installation, deinstallation, and
return to a location within the continental United States (including
without limitation, the expense of intransit insurance) all pursuant to
Lessee's instructions and manufacturer's specifications. Regarding
deinstallation, Lessee will assure that the Equipment is deinstalled by
the manufacturer in accordance with the manufacturer's recommended
procedures and any
<PAGE> 23
Environmental Law, and returned with a Certificate of Decontamination in
the same operating order, repair, condition and appearance as when
originally installed (less normal wear and tear and depreciation) meeting
all original Equipment manufacturer's specifications for continued
manufacturer's maintenance, and accompanied by all associated documents,
manuals, maintenance records for the duration of the Initial Term, spare
parts and accessories. In connection with deinstallation, any contaminant
removed from the Equipment will be removed and transported by licensed
waste removal transporter who shall name Lessor as additional insured on
its environmental liability policy. During the period subsequent to the
receipt of a termination notice under Section 2, Provided Lessor provides
Lessee with reasonably adequate notice and Lessee approves the time for
any such demonstration, Lessor may, after providing reasonable notice to
Lessee demonstrate the Equipment's operation in place and Lessee will
supply any of its personnel as may reasonably be required to assist in the
demonstrations.
F. Section 12, "Risk of Loss".
First paragraph, third sentence after the words "as loss payee" insert the
following "up to the then current casualty value". In the second paragraph
add the following to the end of the paragraph "If Lessor agrees to accept
like equipment as replacement for the loss or destruction of the
equipment, Lessee will not be obligated to replace the Equipment for a
cost greater than the Casualty Value, and Lessee shall be entitled to
retain all of the insurance proceeds received to reimburse Lessee for its
cost to replace the Equipment."
G. Section 13.1, "Default".
Paragraph (a) insert the word "business" before the word "days"; insert
"Lessee's receipt of" before "written notice"; add to the end of the
sentence "of such non-payment".
Paragraph (b) in the first line insert "material" before the word "term".
In the last line, insert "Lessee's receipt of" before "written notice".
Paragraph (c) after the phrase "failure by Lessee to pay its debts when
due" insert "where such past due amounts exceed $50,000 in the aggregate
or any lender has the right to accelerate more than $50,000 of debt", in
the third line after the words "bankruptcy or insolvency law" insert "if
such is not removed within sixty days (60)."
H. Section 14.3, "Obligations to Lease Additional Equipment".
In the first line insert "written" before the word "notice". In line 3
clause (i) after "master lease or any schedule" insert "and such default
is not cured within five (5) days of written notice".
Add to the end of the paragraph: "If Lessor's obligations to lease
additional Equipment are suspended hereunder, Lessee may request a
restoration of such leaseline upon demonstration to Lessor to Lessor's
satisfaction that Lessee has cured the defect which gave rise to the
suspension of Lessor's lease obligation."
I. Section 14.4 "Merger and Sale Provisions".
The second sentence of Section 14.4 of the Master Lease shall be deleted
in its entirety and replaced with the following; "Lessor shall have the
right to consent to the assignment of the Master Lease and all relevant
Schedules to the successor entity, which consent shall not be unreasonably
withheld. If such consent is reasonably withheld, the Lessor shall have
the option to terminate the Master Lease and all relevant Schedules.
J. Section 14.1, "Binding Nature".
<PAGE> 24
Add the end of the paragraph "without the prior written consent of Lessor
which shall not be unreasonably withheld."
K. Section 14.8, "Survival of Obligations".
In the last line, "execution, delivery" shall be revised to read
"execution and delivery", delete "expiration or termination". Add to the
end of the section: "Sections 7.1, 9, and 11, shall survive expiration or
termination of this Master Lease Until all duties thereunder have been
discharged by the parties."
L. Section 14.9, "Notices".
In the last line delete the word "receiving" and replace with the word
"disclosing" before the word "party".
M. Section 14.10, "Applicable Law".
Delete "Illinois" and replace with "California" wherever it appears.
N. Section 14.17, "Landlord/Mortgagee Waiver".
After "Lessee agrees to" insert "use reasonable efforts, (which shall not
include additional monetary payment to Landlord other than deminimis
amounts), to" before "provide Lessor with".
O. Section 14.19, "Definitions".
Delete Interim Rent definition and replace with:
"Interim Rent - means a daily rate of .0278% of Lessor's Cost for each day
from the Commencement Date through but not including the first day of the
first full Rent Interval included in the Initial Term."
MASTER LEASE: This Schedule is issued pursuant to the Master Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Master Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
COMBICHEM, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Illegible By: /s/ James P. Labe
--------------------------- ------------------------------
Title: President & CEO Title: President, Venture Lease Division
------------------------ ---------------------------
Date: 4-25-96 Date:
------------------------ ----------------------------
<PAGE> 25
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
<PAGE> 26
EXHIBIT A
(MULTIPLE MONTHLY DELIVERY)
SCHEDULE NO. VL-3 DATED AS OF April 15, 1996
----
TO MASTER LEASE AGREEMENT DATED AS OF November 16, 1994 ("MASTER LEASE"")
LESSEE: CombiChem, Inc. LESSOR: COMDISCO, INC.
Admin.Contact/Phone No.: Address for all Notices:
Controller 6111 North River Road
Ph. (619) 530-0484 Rosemont, Illinois 60018
Fax (619) 530-9998 Attn: Capital Equipment Lease
Administration
Address for Notices:
9050 Camino Santa Fe
San Diego, CA 92121
Attn.:
Central Billing Location: PAYING AGENT:
Same as above Comdisco, Inc.
P.O. Box 91744
Attn.: Chicago, Illinois 60693
Lessee Reference No.: ___________________
(24 digits maximum)
Location of Equipment: Initial Term: 36 months
Same as above
Lease Rate Factor: 3.200%
Attn:
EQUIPMENT (as defined below): Advance: $38,400
Leasehold improvements (which shall be considered "Equipment")
specifically approved by Lessor which shall be accepted by Lessee during
the period April 15, 1996 through December 15, 1996 ("Equipment Delivery
Period"), for which Lessor receives vendor invoices approved for payment,
up to an aggregate purchase price of $325, 000 ("Commitment Amount")
("Phase I").
1. NOTICE PERIOD. Note less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
<PAGE> 27
2. EQUIPMENT PURCHASE
Lessee acknowledges that it has either received or approved Lessor's
purchase documentation for the Equipment. The aggregate purchase price referred
to on the face of this Schedule shall include all Equipment purchased by Lessor,
consisting of amounts financed under Sections (i), (ii) and (iii) below.
(i) NEW EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than April 1, 1996*.
Lessor will not perform a Sale-Leaseback Transaction for any request
or accompanying Equipment ownership documents which arrive after the
date marked above by an asterisk (*). Further, any sale-leaseback
Equipment will be placed on lease subject to: (1) Lessor prior
approval of the Equipment; and (2) if approved, at Lessor's actual
net appraised Equipment value.
(iii) USED EQUIPMENT. Lessor will purchase "used" Equipment which is
obtained from a third party by Lessee for its use subject to: (1)
Lessor's prior approval of the Equipment; and (2) at Lessor's
appraised value for such used Equipment.
3. COMMENCEMENT DATE
The Commencement Date for each item of Equipment will be its Installation
Date. Lessee agrees to confirm the Commencement Date by providing Lessor with
Invoices containing the Equipment location, description, serial number and cost,
the Installation Date and Lessees signature. Lessor will summarize all Invoices
and/or IAFs received in the same calendar month provided however that each
Commencement Certificate must cover equipment with an equipment cost of at least
$10,000 or Lessor shall include such equipment on the Commencement Certificate
for the next succeeding month into a Commencement Certificate in the form
attached to this Schedule as Exhibit 1 and the Initial Term will begin the first
day of the calendar month thereafter. Each Commencement Certificate will
incorporate the terms and conditions of the Master Lease and this Schedule and
will constitute a separate Schedule. Notwithstanding the foregoing, if the
Equipment pertains to Sale-Leaseback Equipment the Commencement Date will be the
date Lessor tenders the purchase price.
4. OPTION TO EXTEND
So long as no Event of Default shall have occurred and be continuing,
Lessee will have the right to extend the Initial Term of this Schedule for a
period of one (1) year by giving Lessor at least ninety days (90) days written
notice prior to the expiration of the Initial Term. In such event, the rent to
be paid during said extended period shall be mutually agreed upon and if the
parties cannot mutually agree, then the Lease shall continue in full force and
effect pursuant to the existing terms and conditions until terminated in
accordance with its terms. This Schedule will continue in effect following said
extended period until terminated by either party upon not less than ninety (90)
days prior written notice, which notice shall be effective as of the Rent
Interval next following receipt.
5. PHASE II FINANCING
SO LONG AS NO EVENT OF DEFAULT SHALL HAVE OCCURRED OR IS CONTINUING, AND
SUBJECT TO FINAL REVIEW BY LESSOR, LESSOR AGREES TO PROVIDE TO LESSEE AN
ADDITIONAL $875,000 OF EQUIPMENT FINANCING UPON WRITTEN REQUEST OF LESSEE.
LESSEE WILL DELIVER TO LESSOR A WARRANT AGREEMENT IN FORM AND SUBSTANCE
SATISFACTORY TO LESSOR, WHEREBY LESSEE SHALL GRANT LESSOR THE RIGHT TO PURCHASE
THAT NUMBER OF SHARES OF SERIES C PREFERRED STOCK EQUAL TO 7% OF $875,000
DIVIDED BY $0.62.
<PAGE> 28
6. MISCELLANEOUS
In consideration of Lessor financing leasehold improvements hereunder,
Lessee hereby agrees in addition to its last Monthly Rent payment to remit to
Lessor an amount equal to 12% of Lesser's cost of Leasehold improvements
provided hereunder.
7. ENVIRONMENTAL CONDITION
a. Indemnification. Lessee shall fully and promptly pay, perform,
discharge, defend, indemnify and hold harmless Lessor and its Affiliates
(defined below) , successors and assigns, directors, officers, employees
and agents from and against any Environmental Claim or Environmental Loss
(defined below).
b. Lessee Cooperation. In the event of an Environmental Claim, Lessee
shall, upon request, immediately provide Lessor with copies of all
correspondence reports, notices, orders, findings, declarations and other
materials pertinent to the Lessee's compliance with and requirements of
any Environmental Law (defined below).
c. Lessee Insurance. If Lessee is required by law to obtain an
environmental liability policy, the Lessee shall name Lessor as an
additional insured on its environmental liability insurance policy.
d. Adverse Environmental Condition - means (i) the existence or the
continuation of the existence, of an Environmental Emission (including,
without limitation, a sudden or non-sudden accidental or non- accidental
Environmental Emission), of or exposure to, any substance, chemical,
material, pollutant, contaminant, odor or audible noise or other release
or emission in, into or onto the environment (including without
limitation, the air, ground, water or any surface) at, in, by, from or
related to any Equipment, (ii) the environmental aspect of the
transportation, storage, treatment or disposal of materials in connection
with the operation of any Equipment, or (iii) the violation, or alleged
violation of any statutes, ordinances, orders, rules, regulations, permits
or licenses of, by or from any governmental authority, agency or court
relating to environmental matters connected with any Equipment.
e. Affiliate - means any entity that is directly or indirectly, through
one or more intermediaries, controls or is controlled by, or is under
common control with Lessor.
f. Environmental Claim - means any accusation, allegation, notice of
violation, claim, demand, abatement or other order or direction
(conditional or otherwise) by an governmental authority or any Person for
personal injury (including sickness, disease, or death), tangible or
intangible property damage, damage to the environment or natural
resources, nuisance, pollution, contamination or other adverse effects on
the environment, or for fines, penalties or restrictions, resulting from
or based upon any Adverse Environmental Condition (defined above).
g. Environmental Emission - means any actual or threatened release,
spill, omission, leaking, pumping, injection, deposition, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment, or into or out of any of the Equipment, including, without
limitation, the movement of any Contaminant or other substance through or
in the air, soil, surface water, groundwater or property.
h. Environmental Law - means any federal, foreign, state or local law,
rule or regulation pertaining to the protection of the environment,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") (42 U.S.C. Section 9601 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. 1251, et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the
Clean Air Act (42 U.S.C. 7401 et seq.), the Toxic Substances Control Act
(15 U.S.C. 2601 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. 1361 et seq.), and the Occupational Safety and
Health Act (10 U.S.C. 651 et seq.), as these laws have been amended or
supplemented, and any analogous foreign, state or local statutes, and the
regulations promulgated pursuant thereto.
<PAGE> 29
i. Environmental Loss - means any loss, cost, damage, liability,
deficiency, fine, penalty or expense (including, without limitation,
reasonable attorneys' fees, engineering and other professional or expert
fees), investigation, removal, cleanup and remedial costs (voluntarily or
involuntarily incurred) and damages to, loss of the use of or decrease in
value of the Equipment arising out of or related to any Adverse
Environmental Condition.
j. Person - means any individual, partnership, corporation, trust,
unincorporated organization, government or department or agency thereof
and any other entity.
8. SPECIAL TERMS
The terms and conditions of the Master Lease Agreement as they pertain to this
Schedule are hereby modified and amended as follows:
A. Section 5.2, "Relocation or Sublease".
In the first line insert "Lessor's" before "prior written consent" and
insert "which shall not be unreasonably withheld" before "Lessee may
relocate Equipment".
B. Section 5.3, "Assignment by Lessor".
In paragraph A line 3 after "so long as" insert "there has not been an
Event of Default,".
C. Section 6.2, "Taxes and Fees".
Delete the parenthetical phrase in the second line of the paragraph.
D. Section 8, "Representations and Warranties of Lessee".
Paragraph (d) insert at the beginning of the sentence "To Lessee's
knowledge,".
Paragraph (f) add to the end of the paragraph ", the infringement or
conflict of which would have a material adverse effect on the Lessee."
E. Section 9, "Delivery and Return of Equipment".
Delete from "Upon termination" through the end of the paragraph.
F. Section 12, "Risk of Loss".
First paragraph, third sentence after the words "as loss payee" insert the
following "up to the then current casualty value". In the second paragraph
add the following to the end of the paragraph "If Lessor agrees to accept
like equipment as replacement for the loss or destruction of the
equipment, Lessee will not be obligated to replace the Equipment for a
cost greater than the Casualty Value, and Lessee shall be entitled to
retain all of the insurance proceeds received to reimburse Lessee for its
cost to replace the Equipment."
G. Section 13.1, "Default".
Paragraph (a) insert the word "business" before the word "days"; insert
"Lessee's receipt of" before "written notice"; add to the end of the
sentence "of such non-payment".
Paragraph (b) in the first line insert "material" before the word "term".
In the last line, insert "Lessee's receipt of" before "written notice".
<PAGE> 30
Paragraph (c) after the phrase "failure by Lessee to pay its debts when
due" insert "where such past due amounts exceed $50,000 in the aggregate
or any lender has the right to accelerate more than $50,000 of debt", in
the third line after the words "bankruptcy or insolvency law" insert "if
such is not removed within sixty days (60)."
H. Section 14.3, "Obligations to Lease Additional Equipment".
In the first line insert "written" before the word "notice". In line 3
clause (i) after "master lease or any schedule" insert "and such default
is not cured within five (5) days of written notice".
Add to the end of the paragraph: "If Lessor's obligations to lease
additional Equipment are suspended hereunder, Lessee may request a
restoration of such leaseline upon demonstration to Lessor to Lessor's
satisfaction that Lessee has cured the defect which gave rise to the
suspension of Lessor's lease obligation."
I. Section 14.4 "Merger and Sale Provisions".
The second sentence of Section 14.4 of the Master Lease shall be deleted
in its entirety and replaced with the following; "Lessor shall have the
right to consent to the assignment of the Master Lease and all relevant
Schedules to the successor entity, which consent shall not be unreasonably
withheld. If such consent is reasonably withheld, then Lessor shall have
the option to terminate the Master Lease and all relevant Schedules."
J. Section 14.7, "Binding Nature".
Add the end of the paragraph "without the prior written consent of Lessor
which shall not be unreasonably withheld."
K. Section 14.8, "Survival of Obligations".
In the last line, "execution, delivery" shall be revised to read
"execution and delivery", delete "expiration or termination". Add to the
end of the section: "Sections 7.1, 9, and 11, shall survive expiration or
termination of this Master Lease until all duties thereunder have been
discharged by the parties."
L. Section 14.9, "Notices".
In the last line delete the word "receiving" and replace with the word
"disclosing" before the word "party".
M. Section 14.10, "Applicable Law".
Delete "Illinois" and replace with "California" wherever it appears.
N. Section 14.17, "Landlord/Mortgagee Waiver".
After "Lessee agrees to" insert "use reasonable efforts, (which shall not
include additional monetary payment to Landlord other than deminimis
amounts), to" before "provide Lessor with".
O. Section 14.19, "Definitions".
P. Delete Interim Rent definition and replace with:
"Interim Rent - means a daily rate of .0278% of Lessor's Cost for each day
from the Commencement Date through but not including the first day of the
first full Rent Interval included in the Initial Term."
<PAGE> 31
MASTER LEASE: This Schedule is issued pursuant to the Master Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Master Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Master Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
COMBICHEM, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Illegible By: /s/ James P. Labe
--------------------------- ------------------------------
Title: President & CEO Title: President, Venture Lease Division
------------------------ ---------------------------
Date: 4-25-96 Date:
------------------------ ----------------------------
<PAGE> 32
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
<PAGE> 1
EXHIBIT 10.19
COLLABORATION AGREEMENT
BETWEEN
COMBICHEM, INC.
AND
TEIJIN LIMITED
March 29, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS................................................................................................... 1
ARTICLE 2 COLLABORATION RESEARCH AND SCREENING.......................................................................... 7
2.1 Collaboration Research Activities............................................................................. 8
2.2 Research Plan................................................................................................. 9
2.3 Option to Expand the Research Program or to Extend the Research
Program Term.................................................................................................. 9
2.4 Records....................................................................................................... 9
2.5 Permitted Activities.......................................................................................... 9
2.6 Post-Research Program Activities.............................................................................. 10
2.7 Reports....................................................................................................... 10
2.8 Excluded Products............................................................................................. 10
2.9 Retained Rights............................................................................................... 11
2.10 Restricted Activities; Rights Following Termination of Exclusivity............................................ 11
ARTICLE 3 MANAGEMENT.................................................................................................... 12
3.1 Research Committee............................................................................................ 12
3.2 Membership of RC.............................................................................................. 12
3.3 RC Meetings................................................................................................... 12
3.4 Decision Making............................................................................................... 12
ARTICLE 4 ***........................................................................................................... 13
4.1 ***........................................................................................................... 13
***
4.2 ***........................................................................................................... 13
***
4.3 ***........................................................................................................... 14
ARTICLE 5 LICENSES...................................................................................................... 14
5.1 Licenses to Teijin............................................................................................ 14
5.2 Licenses to CombiChem......................................................................................... 15
5.3 *** ............................................................................................... 15
5.4 *** ............................................................................................... 15
5.5 No Liability Regarding Third Party Rights..................................................................... 16
5.6 Research License.............................................................................................. 16
5.7 No Other Products............................................................................................. 16
ARTICLE 6 PAYMENTS...................................................................................................... 16
6.1 *** Payment.............................................................................................. 16
6.2 Collaboration Funding......................................................................................... 16
6.3 Milestone Payments............................................................................................ 17
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
6.4 Royalties to CombiChem........................................................................................ 18
6.5 ***......................................................................................................... 19
6.6 ***......................................................................................................... 20
ARTICLE 7 PAYMENTS; BOOKS AND RECORDS................................................................................... 20
7.1 Royalty Reports and Payments.................................................................................. 20
7.2 Method for Payments........................................................................................... 20
7.3 Place of Royalty Payment and Currency Conversions............................................................. 20
7.4 Records; Inspection........................................................................................... 21
7.5 Tax Matters................................................................................................... 21
ARTICLE 8 DUE DILIGENCE................................................................................................. 22
8.1 Due Diligence................................................................................................. 22
8.2 License Back.................................................................................................. 22
8.3 Regulatory Filings............................................................................................ 22
ARTICLE 9 INTELLECTUAL PROPERTY......................................................................................... 23
9.1 Ownership of Inventions....................................................................................... 23
9.2 Patent Prosecution............................................................................................ 24
9.3 Enforcement and Defense....................................................................................... 26
ARTICLE 10 CONFIDENTIALITY............................................................................................... 26
10.1 Confidential Information...................................................................................... 27
10.2 Permitted Use and Disclosures................................................................................. 27
10.3 Nondisclosure of Terms........................................................................................ 28
10.4 Publication................................................................................................... 28
ARTICLE 11 REPRESENTATIONS AND WARRANTIES................................................................................ 28
11.1 Teijin........................................................................................................ 28
11.2 CombiChem..................................................................................................... 29
11.3 Disclaimer.................................................................................................... 29
11.4 No Consequential Damages...................................................................................... 29
ARTICLE 12 ***........................................................................................................... 30
12.1 ***......................................................................................................... 30
12.2 ***......................................................................................................... 30
12.3 ***......................................................................................................... 30
ARTICLE 13 DISPUTE RESOLUTION............................................................................................ 31
13.1 General Arbitration........................................................................................... 31
13.2 Arbitration Procedures........................................................................................ 31
13.3 Disqualification.............................................................................................. 32
13.4 Confidentiality............................................................................................... 32
13.5 Equity........................................................................................................ 32
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
iii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 14 TERM AND TERMINATION.......................................................................................... 32
14.1 Term.......................................................................................................... 32
14.2 Termination for Cause......................................................................................... 33
14.3 Termination for Insolvency.................................................................................... 33
14.4 Effect of Breach or Termination............................................................................... 33
14.5 Survival...................................................................................................... 34
ARTICLE 15 MISCELLANEOUS................................................................................................. 34
15.1 Governing Laws................................................................................................ 34
15.2 No Implied Licenses........................................................................................... 34
15.3 Waiver........................................................................................................ 34
15.4 Assignment.................................................................................................... 34
15.5 Independent Contractors....................................................................................... 35
15.6 Compliance with Laws.......................................................................................... 35
15.7 Patent Marking................................................................................................ 35
15.8 Notices....................................................................................................... 35
15.9 Severability.................................................................................................. 36
15.10 Force Majeure................................................................................................. 36
15.11 Complete Agreement; Amendment................................................................................. 36
15.12 Headings...................................................................................................... 36
15.13 Counterparts.................................................................................................. 36
</TABLE>
Exhibits
Exhibit A Research Plan
Exhibit B Libraries
Exhibit C Initial Representatives on the Research Committee
iv
<PAGE> 5
COLLABORATION AGREEMENT
This COLLABORATION AGREEMENT (the "Agreement"), effective as of March 29,
1996 (the "Effective Date"), is made by and between CombiChem, Inc., a
California corporation, having a principal place of business at 9050 Camino
Santa Fe, San Diego, California 92121, U.S.A. ("CombiChem"), and Teijin Limited,
an entity organized and existing under the laws of Japan, having a principal
place of business at 6-7 Minami-hommachi 1-chome, Chuo-ku, Osaka 541, Japan
("Teijin").
BACKGROUND
A. Teijin has discovered lead compounds that are ***
*** .
B. CombiChem has developed novel proprietary methods for the generation
of compound libraries. CombiChem believes that its technology, by rapidly
producing diverse and targeted compound libraries, will accelerate the drug
discovery process and increase productivity of drug discovery programs.
C. Teijin and CombiChem desire to collaborate to design, synthesize and
screen compound libraries to identify Collaboration Compounds (as defined
herein).
D. CombiChem desires to ***
***
***
*** .
NOW, THEREFORE, for and in consideration of the covenants, conditions, and
undertakings hereinafter set forth, it is agreed by and between the Parties (as
defined below) as follows:
ARTICLE 1
DEFINITIONS
The following capitalized terms used herein shall have the respective
meanings set forth below. Certain other capitalized terms are defined elsewhere
in this Agreement.
1.1 "Affiliate" shall mean any corporation or other business entity
which during the term of this Agreement controls, is controlled by or is under
common control with CombiChem or Teijin, but only for so long as such entity
controls, is controlled by or is under common control with CombiChem or Teijin.
For this purpose, control means the possession of the power to direct or cause
the direction of the management and the policies of
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 6
an entity whether through ownership directly or indirectly of over fifty percent
(50%) of the stock entitled to vote, and for non-stock organizations, the right
to receive over fifty percent (50%) of the profits by contract or otherwise, or
if not meeting the preceding requirement, any company owned or controlled by or
owning or controlling CombiChem or Teijin at the maximum control or ownership
right permitted in the country where such company exists.
1.2 "Aggregate Annual Research Fee" shall mean the aggregate Annual
Research Fee for a contract year as set in Sections 1.3 and 6.2, unless modified
by mutual agreement of the Parties.
1.3 "Annual Research Fee" shall mean on a per scientist full-time basis
(a) for the first year of the Research Program, *** per CombiChem
scientist, (b) for the first year of the Research Program, *** per
Teijin scientist sited at CombiChem's facility and (c) for any subsequent year
of the Research Program, the Annual Research Fee per scientist for the previous
year increased by *** of the percentage increase during the previous
year in the CPI. If such index ceases to be published, then such index shall be
replaced with the index which most closely resembles the performance of such
index, as determined by the mutual agreement of the Parties.
1.4 " *** Active Compound" shall mean a Library Compound
screened during the *** Exclusivity Period which has ***
Receptor Activity.
1.5 " *** Compound" shall mean any (a) *** Active
Compound or (b) Derivative Compound which demonstrates *** Receptor
Activity as well as any compositions-of-matter claimed in patent applications
filed or patents issued under Article 9 of this Agreement with respect to
compounds described in (a) or (b) above.
1.6 " *** Exclusivity Period" shall mean the period of time
*** *** .
1.7 " *** Receptor Activity" shall mean *** ***
*** .
1.8 "Collaboration" shall comprise the activities described in Article 2
below.
1.9 "Collaboration Compounds" shall mean *** *** .
1.10 *** *** .
1.11 "CPI" means the Consumer Price Index, All Urban Consumers, as
published by the U.S. Bureau of Labor Statistics.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
2
<PAGE> 7
1.12 "Derivative Compound" shall mean any compound that demonstrates
activity against a particular molecular target, which compound is derived from a
Library Compound active against that molecular target by CombiChem, or Teijin or
its Affiliates, or by a third party under authority from Teijin. A compound
shall be deemed to have been "derived from" a Library Compound if it: (i)(A)
results from a chemical synthesis program based on a Library Compound or (B) is
based on structure-activity data relating to a Library Compound ***
, and (ii) is a compound synthesized during the ***
Exclusivity Period (with respect to a Library Compound with ***
) or the *** Exclusivity Period (with respect to a
Library Compound with *** ). It is understood that
"Derivative Compound" shall include compounds derived from a Library Compound or
from another Derivative Compound.
1.13 "Due Diligence" shall have the meaning set forth in Section 8.1 of
this Agreement.
1.14 "Europe" shall mean the geographic territory encompassed on the date
of this Agreement by all of those countries which are the members of the
European Free Trade Association or the European Union (formerly the European
Community), all countries that were formerly members of COMECON, the independent
republics of the former Republic of Yugoslavia, and all of the former republics
of the Union of Soviet Socialist Republics, together with any additional nations
or states that may be created in such geographical territory after the date of
the Agreement.
1.15 "Excluded Product" shall mean any product in the Field with ***
*** , which, prior to the Effective Date, Teijin has synthesized
and either tested or has expressed an intention to test for ***
*** , as shown by contemporaneous documentation, subject to reasonable
verification.
1.16 "Existing Patent Rights" shall mean (i) all patents and patent
applications existing as of the Effective Date that claim a Collaboration
Compound or method of use or process thereof or composition-of-matter thereof,
(ii) any divisions, continuations, continuations-in-part, reissues,
reexaminations, extensions or other governmental actions which extend any of the
subject matter of a patent in subsection (i) above, (iii) all patents and patent
applications listed in subsections (i) or (ii) above that are subsequently
withdrawn and re-filed, and (iv) any substitutions, confirmations,
registrations, revalidations, or additions of any of the foregoing, in each
case, which is owned or controlled, in whole or part, by license, assignment or
otherwise by CombiChem during the term of this Agreement.
1.17 "Existing Know-How" shall mean all ideas, inventions, data,
know-how, instructions, processes, formulas, expert opinion and information,
existing as of the Effective Date owned or controlled in whole or part by
CombiChem, by license, assignment or otherwise, in each case, which are
necessary for the development, manufacture, use, sale or commercialization of a
Collaboration Compound or Product, in each case, to the extent CombiChem has the
right to license or sublicense the same, and subject to any limitations or
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
3
<PAGE> 8
prohibitions of any license or sublicense. Excluded from Existing Know-How are
any inventions otherwise included in the definition of any Existing Patent
Rights in this Agreement.
1.18 "Field" shall mean the therapeutic or prophylactic treatment or
prevention of diseases and conditions in humans and animals.
1.19 "FDA" shall mean the U.S. Food and Drug Administration or any
corresponding foreign registration or regulatory authority.
1.20 "Future Patent Rights" shall mean (i) all patents and patent
applications that claim a Collaboration Compound or method of use or process
thereof conceived and reduced to practice by CombiChem in the period from the
Effective Date until the expiration of the Exclusivity Period and (ii) any
divisions, continuations, continuations-in-part, reissues, reexaminations,
extensions or other governmental actions which extend any of the subject matter
of the patent applications or patents in (i) above, and any substitutions,
confirmations, registrations, revalidations or additions of any of the
foregoing, in each case, which is owned or controlled, in whole or part, by
license, assignment or otherwise by CombiChem or its Affiliates during the term
of this Agreement. Excluded from Future Patent Rights are patents and patent
applications otherwise included in Existing Patent Rights in this Agreement.
1.21 "Future Know-How" shall mean all ideas, inventions, data, know-how,
instructions, processes, formulas, expert opinion and information owned or
controlled by CombiChem in whole or part by license, assignment or otherwise in
the period from the Effective Date until the expiration of the ***
*** which are necessary for the development, manufacture, use or sale or
commercialization of a Collaboration Compound or Product, in each case, to the
extent CombiChem or its Affiliates has the right to license or sublicense the
same, and subject to any limitations or prohibitions of any license or
sublicense. Excluded from Future Know-How are any inventions otherwise included
in the definition of any Future Patent Rights in this Agreement.
1.22 "IND" shall mean an Investigational New Drug application, as defined
in the U.S. Food, Drug, and Cosmetic Act and the regulations promulgated
thereunder for initiating human clinical trials in the United States, or any
corresponding foreign application, registration or certification.
1.23 "In Vitro Activity" shall mean: *** *** ***
*** .
1.24 "In Vivo Activity" shall mean *** *** .
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
4
<PAGE> 9
1.25 "Library" shall mean a chemical compound library whose design has
been approved by the Research Committee (as defined below) containing
approximately *** *** molecules prepared by CombiChem
specifically for screening in the Collaboration based on proprietary structures
(a) with activity disclosed by Teijin to CombiChem or (b) generated by CombiChem
on behalf of Teijin, in each case, in connection with the Collaboration.
1.26 "Library Compound" shall mean any compound which is contained in a
Library provided by CombiChem to Teijin in connection with the Collaboration.
1.27 "Licensed Technology" shall mean Existing Patent Rights, Future
Patent Rights, Existing Know-How and Future Know-How.
1.28 " *** Active Compound" shall mean a Library Compound
screened during the *** .
1.29 " *** Activity" shall mean *** *** .
1.30 " *** Compound" shall mean any (a) *** Active
Compound or (b) Derivative Compound which demonstrates *** Activity as
well as any compositions-of-matter claimed in patent applications filed or
patents issued under Article 9 of this Agreement with respect to compounds
described in (a) or (b) above.
1.31 " *** Exclusivity Period" shall mean the period of time
*** *** .
1.32 "NDA" shall mean a New Drug Application, as defined in the U.S.
Food, Drug, and Cosmetic Act and the regulations promulgated thereunder, or any
corresponding foreign application, registration or certification.
1.33 "Net Sales" shall mean the invoice price billed by a Party, its
Affiliates or Sublicensees to third parties for the sale of Products, after
deduction of (i) cash, trade and/or quantity discounts actually allowed; (ii)
amounts repaid or credited- by reason of rejections or returns of goods,
recalls, chargebacks, defects, or rebates; (iii) freight, postage, and duties
paid for and separately identified on the invoice or other documentation
maintained in the ordinary course of business; and (iv) excises, sales taxes,
value added taxes, and duties paid for and separately identified on the invoice
or other documentation maintained in the ordinary course of business. Net Sales
shall also include the amount or fair market value of all other consideration
received by a Party, its Affiliates or Sublicensees in respect of Products,
whether such consideration is in cash, payment in kind, exchange or another
form; provided, however, Net Sales shall not include up-front payments,
reimbursements or payments in connection with research and development
activities or payments for equity or other securities of a Party. A "sale" of an
Product is deemed to occur upon the earliest of invoicing, shipment or transfer
of title in the Product by a Party to a person other than such Party or its
Affiliate or Sublicensee, unless such Affiliate or Sublicensee is an end user of
the Product. In
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
5
<PAGE> 10
the event that an Product is sold bundled with one or more other products
(Products or otherwise) or provided in conjunction with any services, in either
case, in connection with a capitation pricing arrangement or any other
aggregated payment agreement or program, Net Sales from such bundled sales
and/or services for purposes of calculating Net Sales allocated to the Product
shall be equal to the bona fide list price of the Product when sold separately
in comparable quantities.
1.34 "Other Library Compounds" shall mean Library Compounds other than
Collaboration Compounds.
1.35 "Party" shall mean CombiChem or Teijin, and their permitted
successors and assigns, as the case may be.
1.36 "Phase I", "Phase II", and "Phase III" shall mean Phase I (or Phase
I/II), Phase II (or Phase II/III), and Phase III clinical trials, respectively,
in each case as prescribed by applicable FDA IND Regulations, or any
corresponding foreign statutes, rules or regulations.
1.37 "Product(s)" shall mean any product containing a Collaboration
Compound. Products shall not include Excluded Products or products containing an
Other Library Compound.
1.38 "Product Development Candidate" shall mean any ***
*** which (a) merits initiation of expanded animal toxicology studies, data
of which are required to be submitted to FDA for an IND, including, without
limitation: (i) formulation/stability studies; (ii) pharmacokinetic studies;
(iii) drug metabolism studies; (iv) dose ranging (prior to toxicology) studies;
and (v) one-month toxicology studies in two species; and (b) has satisfied, in
Teijin's reasonable judgment, the following criteria (and any other criteria
which may seem relevant to Teijin in its reasonable judgment, excluding criteria
set forth in (a) above): (i) demonstrated In Vitro Activity; (ii) demonstrated
In Vivo Activity; (iii) demonstrated safety pharmacology in two species (e.g.,
rat and dog) showing satisfactory therapeutic index and efficacy as compared to
a central nervous system and cardiovascular profile; (iv) demonstrated an
appropriate cellular toxicity profile; (v) demonstrated appropriate mutagenicity
results; and (vi) demonstrated appropriate single dose and two-week non-GLP
toxicology results in two species (e.g., rat and dog).
1.39 "Research Committee" or "RC" shall mean the oversight committee
described in Article 3.
1.40 "Research Plan" shall mean the written overall plan (a copy of which
is attached hereto as Exhibit A) for the Research Program the Parties will
conduct to optimize Library Compounds with *** during the Research
Program Term. The Research Plan may be revised as necessary by agreement of the
RC.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
6
<PAGE> 11
1.41 "Research Program" shall mean the research to be conducted in
accordance with the Research Plan as part of the Collaboration, and shall
include the activities and items set forth in Section 2.1 of this Agreement.
1.42 "Research Program Term" shall mean the period commencing on March
29, 1996 and terminating on the *** thereof, unless extended pursuant
to Section 2.3.
1.43 "Sublicensee" shall mean, with respect to a particular Product, a
third party to whom a Party has granted a license or sublicense under the
Licensed Technology or the Teijin Technology and/or the Teijin Know-How, as the
case may be, to make, use and/or sell such Product, including, without
limitation, a collaborative partner of Teijin or CombiChem. As used in this
Agreement, it is understood that "Sublicensee" shall also include a third party
to whom a Party has granted the right to distribute such Product, provided that
such third party has the primary responsibility for marketing and promotion at
its expense of such Product within the field or territory for which such
distribution rights are granted, which marketing and promotional activities are
not subsidized directly or indirectly by a Party or its Affiliates.
1.44 "Teijin Technology" shall mean any patent application or patent (a)
arising in connection with or out of the Research Program or (b) necessary to
make, use or sell a Collaboration Compound or Product, and is owned or
controlled, in whole or in part, by Teijin or its Affiliates at any time during
the term of this Agreement that claims the synthesis, composition-of-matter or
method of use of a Library Compound, a Collaboration Compound or a Product.
1.45 "Teijin Know-How" shall mean all ideas, inventions, data, know-how,
instructions, processes, formulas, expert opinion and information owned or
controlled in whole or in part by Teijin, by license, assignment or otherwise
during the term of this Agreement, which are necessary for the development,
manufacture, use or sale or commercialization of a Collaboration Compound or
Product, to the extent Teijin has the right to license or sublicense the same,
and subject to any limitation and prohibitions of any license or sublicense.
Excluded from Teijin Know-How are any inventions otherwise included in the
definition of Teijin Technology in this Agreement.
1.46 "Territory" shall mean *** *** ***
*** *** *** .
ARTICLE 2
COLLABORATION RESEARCH AND SCREENING
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
7
<PAGE> 12
2.1 Collaboration Research Activities. Subject to the terms and
conditions set forth herein, the Parties shall conduct research under the
Research Plan with respect to Collaboration Compounds on a collaborative basis
with the goal of developing Products.
2.1.1 CombiChem Responsibilities.
(a) During the Research Program Term, CombiChem shall
*** . Such Libraries shall be provided to Teijin
according to the schedule set forth in the Research
Plan. The Libraries shall be provided in 96-well plates
or Eppendorf tubes, and shall contain the quantities of
Library Compounds set forth on Exhibit B;
(b) During the Research Program Term, CombiChem shall keep
the RC fully informed of its activities performed in
connection with the Collaboration, including, without
limitation, by providing the RC with data and
information regarding Libraries, Collaboration Compounds
and structures thereof;
(c) During the Research Program Term, CombiChem shall
provide an *** *** under the Research
Program; and
(d) During the Research Program Term, CombiChem shall
provide space and resources to accommodate ***
*** .
2.1.2 Teijin Responsibilities.
(a) Teijin shall use reasonable efforts to provide CombiChem
with support and assistance useful or necessary for the
conduct of the Research Plan, including, but not limited
to, providing chemical intermediates, if available,
information concerning assay methods and screening data;
(b) During the Research Program Term Teijin shall keep the
RC fully informed of its activities performed in
connection with the Collaboration, including, without
limitation, by providing the RC with data and
information regarding Collaboration Compounds, and
structures thereof, and *** assays developed
and used by Teijin to test Library Compounds;
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(c) During the Research Program Term, Teijin shall provide
an *** *** at CombiChem's facility
under the Research Program;
(d) During the Research Program Term and during the ***
*** , Teijin shall screen the Libraries
for *** *** . Any compound
identified as having *** Activity as a result
of such screening shall be considered ***
*** Compound for all purposes of this Agreement,
and any compound identified as having ***
Receptor Activity as a result of such screening shall be
considered a *** Compound for all purposes of
this Agreement; and
(e) During and following the Research Program Term, Teijin
shall use Due Diligence to optimize Collaboration
Compounds into Products, as set forth in Section 8.1
below.
2.2 Research Plan. The Parties hereby agree that the Research Program
shall be carried out in accordance with the Research Plan, a copy of which is
attached hereto as Exhibit A. The RC shall review the Research Plan on an
ongoing basis and may make changes to the Research Plan; provided, however, the
Research Plan shall not be modified except as mutually agreed by CombiChem and
Teijin.
2.3 Option to Expand the Research Program or to Extend the Research
Program Term. Teijin shall have the right to expand or extend the term of the
Research Program for up to *** . To expand the Research Program,
Teijin shall promptly notify CombiChem of its desire. To extend the Research
Program Term, Teijin must notify CombiChem no later than *** prior to
the then current expiration date for the Research Program Term. Following such
notification, the Parties shall negotiate the terms of any such expansion or
extension in good faith.
2.4 Records. CombiChem and Teijin and their respective Affiliates shall
maintain records of the Research Program (or cause such records to be
maintained) in sufficient detail and in good scientific manner as will properly
reflect all work done and results achieved in the performance of the Research
Program (including all data in the form required under any applicable
governmental regulations and as directed by the RC). Each Party shall allow the
other to have reasonable access to all pertinent materials and data generated by
or on behalf of such Party with respect to each Collaboration Compound in
connection with the Research Program, as set forth in the Research Plan.
2.5 Permitted Activities. Subject in all cases to Section 2.10, each of
Teijin and CombiChem may screen the Libraries, both during the Research Program
Term and thereafter, for activity other than *** . CombiChem and
Teijin may further collaborate with respect to any Other Library Compounds
discovered pursuant to
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this Section 2.5 and the terms and conditions of any such further collaboration
shall be subject to good-faith negotiations.
2.6 Post-Research Program Activities. Except as expressly provided
elsewhere under the terms of this Agreement, Teijin shall, at Teijin's or its
Affiliates or Sublicensees' expense, be responsible for conducting all
development and commercialization of Collaboration Compounds and Products to
which Teijin retains rights under this Agreement following the Research Program
Term.
2.7 Reports.
2.7.1 Collaboration Compounds. Following the Research Program Term,
Teijin shall keep CombiChem fully informed of its activities with respect to
Collaboration Compounds. Teijin shall provide CombiChem with ***
*** providing at least the following information regarding the status of
all Collaboration Compounds: (i) description of the status of the research and
development activities conducted with respect to each Collaboration Compound,
including decisions made to discontinue development of any Collaboration
Compound; and (ii) the status of all patent applications claiming such
Collaboration Compounds. Such reports shall contain sufficient information to
allow CombiChem to monitor Teijin's obligations under this Agreement, including,
without limitation, Teijin's obligations with respect to Due Diligence set forth
in Section 8.1 below and the accomplishment of the milestones set forth in
Section 6.2 below. Until first commercial introduction of each royalty-bearing
Product by or on behalf of Teijin hereunder, Teijin shall keep CombiChem
apprised of the status of the pre- clinical, clinical and commercial development
of that Product by *** providing CombiChem with a written report
detailing such activities with respect to each applicable Product during the
term of this Agreement.
2.7.2 Library Compounds. During the Research Program Term, Teijin
shall keep CombiChem fully informed of its activities with respect to Library
Compounds, including, without limitation, notification by Teijin to CombiChem of
its intent to screen such Library Compound against an assay other than an assay
designed to determine *** *** prior to performing any such
screening. Teijin shall provide CombiChem with *** ***
providing such information.
2.7.3 Confidentiality. All reports and information provided under
this Section 2.7 shall be deemed Confidential Information of Teijin.
2.8 Excluded Products. Within thirty (30) days of the filing of an IND
with respect to each Excluded Product, Teijin shall notify CombiChem of such
filing, and provide a detailed description of why such Excluded Product is not
an Product hereunder. If a dispute arises between the Parties which the Parties
are unable to resolve regarding whether or not a product is an Excluded Product,
the dispute shall be settled by binding arbitration pursuant to Article 13
herein.
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2.9 Retained Rights. CombiChem shall retain ownership of the tangible
property embodied in the physical Libraries and in the Library Compounds
provided to Teijin hereunder.
2.10 Restricted Activities; Rights Following Termination of Exclusivity.
2.10.1 *** Exclusivity. During the ***
Exclusivity Period, CombiChem will not (i) knowingly make compounds or
combinatorial libraries for or with any third person or entity specifically for
screening for *** Activity, (ii) enter into contract screening for or
with any third person or entity with respect to *** Activity or (iii)
perform for its own account any screening with respect to ***
Activity; *** , *** *** *** ***
*** ***
2.10.2 *** Exclusivity. During the ***
Exclusivity Period, CombiChem (a) will not enter into contract screening for or
with any third person or entity of the Libraries, any Library Compound or any
Derivative Compound with respect to *** Receptor Activity and (b) will
not perform for its own account any screening of the Libraries, any Library
Compound or any Derivative Compound with respect to *** Receptor
Activity; *** *** *** *** ***
*** *** .
2.10.3 All Other Molecular Targets. During the Research Program
Term, *** *** *** *** .
2.10.4 Commercialization Rights. Teijin's rights to develop and
commercialize each Collaboration Compound as set forth in and subject to the
terms and conditions of this Agreement, shall be *** ***
*** .
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2.10.5 Rights Following Termination of Exclusivity. After the
expiration of the *** Exclusivity Period, the ***
Exclusivity Period or the Research Program Term, as the case may be, CombiChem
and Teijin shall *** *** *** ***
*** .
ARTICLE 3
MANAGEMENT
3.1 Research Committee. Teijin and CombiChem will establish a RC to
oversee, review and coordinate the conduct of the Research Program, including,
without limitation, the design of the Libraries, and provide advice regarding
prosecution of patent applications.
3.2 Membership of RC. The RC shall be comprised of representatives from
each of Teijin and CombiChem, each Party's members selected by that Party. The
initial representatives of each Party are listed on Exhibit C attached hereto.
Each Party shall designate the chief representative for its members ("Chief
Representative"). CombiChem and Teijin may change its RC representatives at any
time, upon written notice to the other Party. The RC shall be chaired as agreed
by the Parties. From time to time, the RC may establish subcommittees to oversee
particular projects or activities, and such subcommittees will be constituted as
the RC agrees.
3.3 RC Meetings.
3.3.1 Research Program Term. During the Research Program Term, the
RC shall meet up to four (4) times per year at regular intervals, or more often
as agreed by the Parties, at such locations as the Parties agree. At such
meetings, the RC will formulate and review the Research Program objectives,
monitor the progress of the Research Program toward those objectives, and take
such other actions as may be specified under this Agreement or as the Parties
deem appropriate. With the consent of the Parties, other representatives of
CombiChem or Teijin or their Affiliates or Sublicensees may attend such RC
meetings as observers. Each Party shall be responsible for all of its own
expenses. The first meeting of the RC shall occur as soon as practicable after
the Effective Date, but in no event later than forty-five (45) days after the
Effective Date.
3.3.2 After Research Program Term. After the Research Program Term
and during the term of this Agreement, the RC shall meet as mutually agreed by
the Parties. At such meetings, the RC will take such other actions as may be
specified under this Agreement or as the Parties deem appropriate. Each Party
shall be responsible for all of its own expenses.
3.4 Decision Making. Decisions of the RC shall be made by agreement
between the Teijin Chief Representative and the CombiChem Chief Representative.
Certain decisions
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must be approved by CombiChem's Chief Executive Officer and Teijin's General
Manager of the Planning and Research Division, Medical and Pharmaceutical Group.
In the event that agreement is not achieved, the dispute will be referred to
CombiChem's Chief Executive Officer (or designee of similar rank) and Teijin's
General Manager of the Planning and Research Division, Medical and
Pharmaceutical Group (or designee of similar rank), who shall promptly meet and
endeavor to resolve the dispute in a timely manner.
ARTICLE 4
***
***
***
***
4.1 ***
***
***
***
***
***
***
***
***
***
***
***
***
***
4.2 ***
***
***
***
***
***
***
***
***
***
***
***
***
***
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4.3 ***
***
***
***
***
***
***
***
***
***
***
***
***
ARTICLE 5
LICENSES
5.1 Licenses to Teijin.
5.1.1 *** Licensed Technology in the Territory. Subject to
the terms and conditions of this Agreement, CombiChem agrees to grant, and
hereby grants, to Teijin *** *** *** ***
*** *** .
5.1.2 *** Relating to Collaboration Compounds and Products
in the Territory. Subject to the terms and conditions of this Agreement,
CombiChem agrees to grant, and hereby grants, to Teijin *** ***
*** *** .
5.1.3 *** Term for Collaboration Compounds. Such licenses
shall be *** *** *** .
5.1.4 *** . Subject to the terms and conditions of this
Agreement, CombiChem agrees to grant and
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hereby grants to Teijin, effective upon the expiration of the ***
Exclusivity Period, *** Exclusivity Period or the Research Program
Term, as the case may be, *** *** *** *** .
5.2 Licenses to CombiChem.
5.2.1 *** Teijin Technology and Teijin Know-How ***
. Subject to the terms and conditions of this Agreement, Teijin agrees to
grant, and hereby grants, to CombiChem *** *** ***
*** *** *** .
5.2.2 *** *** . Subject to the terms and
conditions of this Agreement, Teijin agrees to grant, and hereby grants, to
CombiChem *** *** *** *** .
5.2.3 *** *** . Subject to the terms and
conditions of this Agreement, Teijin agrees to grant, and hereby grants, to
CombiChem, effective upon the expiration of the *** Exclusivity
Period, the *** Exclusivity Period or the Research Program Term, as
the case may be, *** *** *** .
5.2.4 Physical Transfer. In the event that elements or components of
Teijin Technology and/or Teijin Know-How are to be physically transferred to
CombiChem, its Affiliates or Sublicensees in connection with the license grants
contained herein, CombiChem and Teijin shall negotiate in good faith the terms
and conditions for such physical transfer.
5.3 *** *** *** ***
5.4 *** *** ***
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*** *** ***
5.5 No Liability Regarding Third Party Rights. It is understood and
agreed that even if CombiChem complies with its obligations under this
Agreement, that compounds provided to third parties in the course of CombiChem's
other business activities may result in third party patent applications and
patents, including patent applications and patents owned by such third parties,
or owned jointly by CombiChem and such third parties, which could conflict with
patent applications and patents owned by Teijin, or jointly owned by Teijin and
CombiChem hereunder. CombiChem will use its reasonable efforts to avoid such
conflict; provided, that unless Teijin is damaged as a proximate result of a
material breach by CombiChem of the terms of Article 2 or any of the
representations and warranties in Article 11, then CombiChem shall have no
liability under this Agreement with respect to any such conflict.
5.6 Research License. Notwithstanding Section 5.1 above and subject to
Section 2.10, CombiChem shall retain the right under the Licensed Technology to
make, have made and use Library Compounds for its own research purposes.
5.7 No Other Products. Except as otherwise agreed or specifically
provided in the terms of this Agreement, neither Teijin *** shall
commercialize any Library Compound or Collaboration Compound, other than as a
Product in accordance with this Agreement.
ARTICLE 6
PAYMENTS
6.1 *** Payment. In consideration of the licenses contained in
this Agreement, Teijin agrees to pay to CombiChem *** ***
*** *** *** .
6.2 Collaboration Funding. In consideration for CombiChem's performance
of its obligations under the Research Program, within *** of the
Effective Date and within *** of the Research Program Term, Teijin
shall pay CombiChem an amount equal to *** *** the Aggregate
Annual Research Fee set forth below:
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<TABLE>
<CAPTION>
Aggregate
Contract Year Annual Research Fee
------------- -------------------
<S> <C>
*** ***
***
***
***
***
***
***
***
***
</TABLE>
6.3 Milestone Payments.
6.3.1 Collaboration Compound Milestones. Teijin agrees to pay to
CombiChem the amounts set forth in Table 6.3.1 below upon completion by Teijin,
*** *** of each of the milestones set forth in Table 6.3.1 with respect to the
first *** Compound to reach such milestone and the first *** Compound to reach
such milestone. *** *** with respect to *** Compounds or *** Compounds directed
at the same molecular target, regardless of how many applicable Products are
commercialized. No milestone payments shall be due to CombiChem in respect of
(a) Excluded Products in any event or (b) a ***
***
***
***
***
***.
Table 6.3.1
***
***
***
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***
***
***
6.3.2 Payments. Except as set forth in Section 6.3.1 solely with
respect to *** Compounds, all payments made to CombiChem by Teijin
pursuant to this Section 6.3 shall be due within thirty (30) days after the
occurrence of the corresponding milestone. Except as otherwise specifically set
forth in this Agreement, *** *** *** . It is
understood that the milestone payments set forth above shall be made with
respect to the first *** Compound and *** ***
*** *** *** *** *** ***
*** *** .
6.4 Royalties to CombiChem.
6.4.1 Base Royalty on Products. Teijin shall pay to CombiChem in
respect of Net Sales of Products by Teijin, *** , royalties of
*** of Net Sales of each Product within the Territory.
6.4.2 *** *** *** ***
*** ***
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6.4.3 *** *** *** ***
6.4.4 Royalty Term. Teijin's obligation to pay royalties to
CombiChem under this Section 6.4 shall continue for each Product, on a
country-by-country basis, until the date which is the later of (i) ***
after the first commercial sale of such Product in such country by Teijin, its
Affiliates or Sublicensees, (ii) the expiration of the last-to-expire issued
patent within the Licensed Technology containing any claim which would be
infringed by making, using or selling the applicable Product in the applicable
country in the absence of the license grants in this Agreement.
6.4.5 Currency of Payments. All payments made pursuant to this
Section 6.4 shall be made in U.S. dollars.
6.5 ***
6.5.1 *** *** ***
6.5.2 *** *** *** ***
***
6.5.3 *** *** ***
6.5.4 *** *** *** ***
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6.5.5 *** ***
6.6 *** *** *** *** ***
ARTICLE 7
PAYMENTS; BOOKS AND RECORDS
7.1 Royalty Reports and Payments. After the first commercial sale of a
Product on which royalties are payable by *** hereunder, ***
shall make quarterly written reports *** *** , stating in
each such report the number, description, and aggregate Net Sales of each
Product sold during the *** upon which a royalty is payable ***
*** . Concurrently with the making of such reports, ***
*** shall pay to *** royalties due at the rates specified
*** *** .
7.2 Method for Payments. All payments due under this Agreement shall be
made by bank wire transfer in immediately available funds to an account
designated *** *** . Any payments that are not paid on the
date such payments are due under this Agreement shall bear interest to the
extent permitted by applicable law at the prime rate as reported by the Chase
Manhattan Bank, New York, New York, on the date such payment is due, ***
, calculated on the number of days such payment is delinquent.
7.3 Place of Royalty Payment and Currency Conversions. If any currency
conversion shall be required in connection with the calculation of royalties
hereunder, such conversion shall be made using the selling exchange rate for
conversion quoted for current transactions reported in the Western edition of
The Wall Street Journal for the last business day of the calendar quarter to
which such payment pertains. If at any time legal restrictions prevent the
prompt remittance of any royalties owed on Net Sales in any jurisdiction, the
payor may make such payments by depositing the amount thereof in local currency
in a bank account or other depository in such country in the name of the payee.
The payor shall promptly notify the payee of the circumstances leading to such
deposit and, at the payee's request, cooperate with the payee to repatriate such
amounts.
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7.4 Records; Inspection. *** shall keep complete, true and
accurate books of account and records for the purpose of determining the royalty
amounts payable under this Agreement. Such books and records shall be kept at
the principal place of business of *** *** *** to
which they pertain. Such records will be open for inspection during such
*** period by a public accounting firm mutually acceptable to Teijin and
CombiChem, solely for the purpose of verifying royalty statements hereunder.
Such inspections may be made no more than once each calendar year, at reasonable
times and on reasonable notice. Inspections conducted under this Section 7.4
shall be at the expense of the inspecting Party, unless a variation or error
producing an increase exceeding *** of the amount stated for any
period covered by the inspection is established in the course of any such
inspection, whereupon all reasonable costs relating to the inspection for such
period and any unpaid amounts that are discovered will be paid promptly by the
other Party together with interest thereon from the date such payments were due
at the prime rate as reported by the Chase Manhattan Bank, New York, New York,
*** . The public accounting firm employees shall sign a customary
confidentiality agreement as a condition precedent to their inspection, and
shall report to the inspecting Party only that information which would be
contained in a properly prepared royalty report by the other Party.
7.5 Tax Matters.
7.5.1 Withholding Taxes Paid by Teijin. All amounts required to be
paid by Teijin pursuant to this Agreement shall be paid with deduction for
withholding for or on account of any taxes (other than taxes imposed on or
measured by net income) or similar governmental charge imposed by a jurisdiction
other than the United States (collectively, "Teijin Withholding Taxes") to the
extent CombiChem and/or its Affiliates or their successors has the lawful rights
to utilize the Teijin Withholding Taxes paid by Teijin as a credit against
CombiChem and/or its Affiliates regular U.S. tax liability. Teijin shall provide
CombiChem a certificate evidencing payment of any Teijin Withholding Taxes
hereunder.
7.5.2 *** *** *** ***
*** ***
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7.5.3 Sales Taxes. Any sales taxes, use taxes, transfer taxes or
similar governmental charges required to be paid in connection with the transfer
of the Libraries by CombiChem to Teijin shall be the sole responsibility of
Teijin. In the event that CombiChem is required to pay any such amounts, and
reasonably documents payment, Teijin shall promptly remit payment to CombiChem
of such amounts.
ARTICLE 8
DUE DILIGENCE
8.1 Due Diligence. The selection of Collaboration Compounds and Products
for development and commercialization in the Territory shall be in the sole
discretion of Teijin. Teijin shall, at Teijin's expense, be responsible for
conducting all development of Collaboration Compounds and Products in the
Territory, and all commercialization of Products in the Territory. Teijin shall
use its reasonable efforts, comparable to other internal development candidates
of comparable value, to develop and commercialize Products as expeditiously as
practicable and take such other actions as are necessary to obtain government
approvals to market each Product in the Territory (which shall include, without
limitation, the filing of an IND with respect to a Product Development Candidate
within *** of designation of such Library Compound as a Product
Development Candidate as long as Teijin does not suspend the development of such
Product Development Candidate due to a biological profile problem and thereafter
to promote each Product and meet the market demand therefor in such markets)
("Due Diligence"). The Parties acknowledge and agree that any requirements
necessary to meet Due Diligence may be modified with the mutual written consent
of the Parties.
8.2 License Back. If (a) Teijin does not use Due Diligence pursuant to
Section 8.1 of this Agreement to actively develop and commercialize a
Collaboration Compound or Product or (b) determines that it will not
commercialize a Collaboration Compound or Product associated with a specific
molecular target and in each case so notifies CombiChem, and in each case
*** , then the *** *** to such particular Collaboration
Compound or Product associated with such molecular target shall terminate and
CombiChem shall have *** *** to such Collaboration Compound
or Product associated with such molecular target. CombiChem shall have the
*** the Teijin Technology and the Teijin Know-How, *** such
particular Collaboration Compound or Product in the Territory.
8.3 Regulatory Filings. If the *** respect to a Collaboration
Compound or Product shall terminate under Section 8.2, Teijin shall (i) promptly
provide to CombiChem a complete listing and description of all governmental
permits and health registrations and other rights pertaining to the Product,
(ii) without undue
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delay provide CombiChem with access to all regulatory filings made by Teijin
*** *** to the extent possible with respect to such Product,
together with the underlying pre-clinical and clinical data with respect to such
Product, and (iii) (A) agree and assist CombiChem, *** in obtaining
government permits and health registrations pertaining to the Product and
necessary to practice the *** rights granted to CombiChem by Teijin
under Section 8.2 or (B) if CombiChem acquires *** rights under
Section 8.2 and if possible, without undue delay *** ***
*** *** . The Parties shall negotiate in good faith to reach
agreement regarding sharing of costs. No non-clinical or clinical data including
those for such Collaboration Compound or Product may be submitted to the
regulatory authorities for IND or NDA applications by CombiChem, ***
without agreement with Teijin on terms applicable to such submission, including
sharing of the cost of the generation of the data; provided, that Teijin,
*** will provide free of charge to CombiChem, *** any information
or data required by law to be reported to the relevant regulatory authorities
outside of any drug approval process. In such event, CombiChem, ***
may use and incorporate such filings and data in support of applications for
approval of such Product in the Territory, provided that such filings and data
are not those of the pivotal studies which CombiChem, *** are required
to conduct if such filings and data are not available.
ARTICLE 9
INTELLECTUAL PROPERTY
9.1 Ownership of Inventions. Title to all inventions and other
intellectual property made solely by employees of Teijin or its Affiliates, but
not CombiChem or its Affiliates, in connection with and arising out of the
Research Program ("Teijin Inventions") shall be deemed owned by Teijin. Title to
all inventions and other intellectual property made solely by employees of
CombiChem or its Affiliates, but not Teijin or its Affiliates, in connection
with and arising out of with the Research Program ("CombiChem Inventions") shall
be deemed owned by CombiChem. Subject to Section 9.2.1(c), title to all
inventions and other intellectual property made jointly by employees of Teijin
or its Affiliates and employees of CombiChem or its Affiliates in connection
with and arising out of the Research Program ("Joint Inventions") shall be
deemed jointly owned by CombiChem and Teijin.
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9.2 Patent Prosecution.
9.2.1 Responsibilities.
(a) *** . Subject to Sections 9.2.2 and 9.2.3,
*** shall be responsible for (i) preparing, filing, prosecuting and
maintaining in such countries designated by the RC patent applications and
patents relating to all *** *** included within the Licensed
Technology and (ii) conducting any interferences, re- examinations, reissues,
oppositions or requests for patent term extension or governmental equivalents
thereto relating to such Inventions.
(b) *** . Subject to Sections 9.2.2 and 9.2.3,
*** shall be responsible for (i) preparing, filing, prosecuting and
maintaining in such countries designated by the RC patent applications and
patents relating to all *** included within the *** and (ii)
conducting any interferences, re-examinations, reissues, oppositions or requests
for patent term extension or governmental equivalents thereto relating to such
Inventions.
(c) Joint Inventions. Subject to Sections 9.2.2 and 9.2.3,
each Party shall be responsible for (i) preparing, filing, prosecuting and
maintaining *** *** patent applications and patents relating
to all Joint Inventions and (ii) conducting any interferences, re-examinations,
reissues, oppositions or requests for patent term extension or governmental
equivalents thereto relating to such Inventions *** *** . On
agreement between CombiChem and Teijin, either Party may, on behalf of the other
Party, prepare, file, prosecute and maintain patent applications and patents
relating to Joint Inventions *** . In the event of such an agreement,
Joint Inventions for which a Party makes filings *** ***
*** * shall continue to be jointly owned by CombiChem and Teijin only if
the non-filing Party reimburses the filing Party for all of any reasonable costs
incurred with respect to such activities, such reimbursement to occur within a
reasonable time following receipt of an invoice and verification thereof.
CombiChem and Teijin shall keep the RC informed concerning such activities with
respect to Joint Inventions *** .
9.2.2 Failure to Prosecute.
(a) *** Failure. *** may elect upon
*** *** prior notice to discontinue prosecution of any patent
applications filed pursuant to
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*** above and/or not to file or conduct any further activities with
respect to the patent applications or patents subject to such Sections. In the
event CombiChem declines to file or having filed fails to further prosecute or
maintain any patent applications or patents subject to *** above, or
conduct any interferences, re- examinations, reissues, oppositions, then,
subject to *** agreements with third parties, *** shall have
the right to prepare, file, prosecute and maintain such patent applications and
patents *** *** it deems appropriate, and conduct any
interferences, re-examinations, reissues or oppositions at its sole expense;
*** *** .
(b) *** Failure. *** may elect upon
*** prior notice to discontinue prosecution of any patent applications
filed pursuant to *** *** above and/or not to file or
conduct any further activities with respect to the patent applications or
patents subject to such Sections. In the event Teijin declines to file or having
filed fails to further prosecute or maintain any patent applications or patents
subject to *** above, or conduct any interferences, re-examinations,
reissues, oppositions, then, subject to *** agreements with third
parties, *** shall have the right to prepare, file, prosecute and
maintain such patent applications and patents *** ***
*** it deems appropriate, and conduct any interferences, re-examinations,
reissues or oppositions at its sole expense; *** ***
*** .
9.2.3 Cooperation. Each of Teijin and CombiChem shall keep the other
fully informed as to the status of patent matters described in this Article 9,
including, without limitation, by providing the other the opportunity to fully
review and comment on any documents as far in advance of filing dates as
practicable which will be filed in any patent office, and providing the other
copies of any substantive documents that such Party receives from such patent
offices promptly after receipt, including notice of all interferences, reissues,
re-examinations, oppositions or requests for patent term extensions. Teijin and
CombiChem shall each reasonably cooperate with and assist the other at its own
expense in connection with such activities, at the other Party's request.
9.2.4 Costs. Subject to Section 9.2.2, *** shall pay all
costs incurred pursuant to Section 9.2.1(a) and *** shall pay all
costs incurred pursuant to Section 9.2.1(b).
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9.2.5 Copies. Teijin shall promptly provide to CombiChem a copy of
any patent applications filed by Teijin and its Affiliates during the term of
this Agreement with respect to any Library Compound, Collaboration Compound
and/or Product, except with respect to Excluded Products. CombiChem, shall
promptly provide to Teijin a copy of any patent applications filed by CombiChem
and its Affiliates during the term of this Agreement with respect to any
Collaboration Compounds and/or Products.
9.3 Enforcement and Defense.
9.3.1 Enforcement. Each Party shall promptly notify the other of its
knowledge of any potential infringement of the Licensed Technology or the Teijin
Technology by a third party. Each Party agrees to render such reasonable
assistance as the prosecuting Party may request. Costs of maintaining any such
action and damages recovered therefrom shall be paid by and belong to the Party
bringing the action.
(a) *** has the right, but not the obligation, to
take reasonable legal action necessary to protect the Licensed Technology
against infringements by third parties *** . If within six (6) months
following receipt of notice of infringement, Teijin fails to take such action to
halt a commercially significant infringement *** , ***
shall, in its sole discretion, have the right, at its expense, to take such
action as it deems warranted in its own name or in the name of *** or
jointly to cease any infringement with respect to the Licensed Technology.
(b) *** has the right, but not the obligation, to
take reasonable legal action necessary to protect the *** against
infringements by third parties *** . If within six (6) months
following receipt of notice of infringement, *** fails to take such
action to halt a commercially significant infringement *** , ***
shall, in its sole discretion, have the right, at its expense, to take such
action as it deems warranted in its own name or in the name of *** or
jointly to cease any infringement with respect to the *** ***
.
9.3.2 Defense. Each Party shall be solely responsible for defending
at its own expense any infringement suit brought against itself for infringement
of third party intellectual property rights (whether or not covered by patent or
other protection) by manufacturing, selling or using any Product.
ARTICLE 10
CONFIDENTIALITY
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10.1 Confidential Information. Except as otherwise expressly provided
herein, the Parties agree that, for the term of this Agreement and for ***
thereafter, the receiving Party shall not, except as expressly provided in
this Article 10, disclose to any third party or use for any purpose any
confidential information furnished to it by the disclosing Party hereto pursuant
to this Agreement ("Confidential Information"), except to the extent that it can
be established by the receiving Party by competent proof that such information:
(a) was already known to the receiving Party, other than
under an obligation of confidentiality, at the time of
disclosure;
(b) was generally available to the public or otherwise part
of the public domain at the time of its disclosure to
the receiving Party;
(c) became generally available to the public or otherwise
part of the public domain after its disclosure and other
than through any act or omission of the receiving Party
in breach of this Agreement;
(d) was independently developed by the receiving Party as
demonstrated by documented evidence prepared
contemporaneously with such independent development; or
(e) was subsequently lawfully disclosed to the receiving
Party by a person other than a Party.
10.2 Permitted Use and Disclosures. Each Party hereto may use or disclose
information disclosed to it by the other Party to the extent such information is
included in the Licensed Technology, the Teijin Technology or the Teijin
Know-How, as the case may be, and to the extent such use or disclosure is
reasonably necessary and permitted in the exercise of such rights granted
hereunder in filing or prosecuting patent applications, prosecuting or defending
litigation, complying with applicable governmental regulations or court order or
otherwise submitting information to tax or other governmental authorities,
conducting clinical trials, or making a permitted sublicense or otherwise
exercising license rights expressly granted by the other Party to it pursuant to
the terms of this Agreement, provided that if a Party is required to make any
such disclosure of another Party's Confidential Information, other than pursuant
to a confidentiality agreement, it will give reasonable advance notice to the
other Party of such disclosure and, save to the extent inappropriate in the case
of patent applications, will use its reasonable best efforts to secure
confidential treatment of such information in consultation with the other Party
prior to its disclosure (whether through protective orders or otherwise) and
disclose only the minimum necessary to comply with such requirements.
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10.3 Nondisclosure of Terms. Each of the Parties hereto agrees not to
disclose the terms of this Agreement to any third party without the prior
written consent of the other Party hereto, which consent shall not be
unreasonably withheld, except to such Party's attorneys, advisors, investors and
others on a need to know basis under circumstances that reasonably ensure the
confidentiality thereof, or to the extent required by law. Notwithstanding the
foregoing, the Parties shall agree upon a press release to announce the
execution of this Agreement, together with a corresponding Q&A outline for use
in responding to inquiries about the Agreement; thereafter, CombiChem and Teijin
may each disclose to third parties the information contained in such press
release and Q&A without the need for further approval by the other. In addition,
Teijin and CombiChem may make public statements regarding the progress of the
Research Program and the achievement of milestones and fees with respect
thereto, following consultation and mutual agreement, the consent of neither
Party to be unreasonably withheld.
10.4 Publication. Any manuscript by CombiChem or Teijin or its Affiliates
describing the scientific results of the Research Program to be published at any
time or within *** after the end of the Research Program Term shall be
subject to the prior review of the Parties *** prior to submission.
Further, to avoid loss of patent rights as a result of premature public
disclosure of patentable information, the receiving Party shall notify the
disclosing Party in writing within *** after receipt of any disclosure
whether the receiving Party desires to file a patent application on any
invention disclosed in such scientific results. In the event that the receiving
Party desires to file such a patent application, the disclosing Party shall
withhold publication or disclosure of such scientific results until the earlier
of (i) a patent application is filed thereon, or (ii) the Parties determine
after consultation that no patentable invention exists, or (iii) ***
after receipt by the disclosing Party of the receiving Party's written notice of
the receiving Party's desire to file such patent application, or such other
period as is reasonable for seeking patent protection. Further, if such
scientific results contain the information of the receiving Party that is
subject to use and nondisclosure restrictions under this Article 10, the
disclosing Party agrees to remove such information from the proposed publication
or disclosure. Following the filing of any patent application with respect to
the Licensed Technology or the Teijin Technology, in the eighteen (18) month
period prior to the publication of such a patent application neither Party shall
make any public disclosure regarding any invention claimed in such patent
application without the prior consent of the other Party.
ARTICLE 11
REPRESENTATIONS AND WARRANTIES
11.1 Teijin. Teijin represents and warrants on its own behalf and on
behalf of its Affiliates that: (i) it has the legal right and power to extend
the rights granted in this Agreement; (ii) it has the legal power, authority and
right to enter into this Agreement and to fully perform its obligations
hereunder; (iii) it has not previously granted, and during the term of this
Agreement will not knowingly make any commitment or grant any rights, which in
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any material way conflict with the rights and licenses granted herein; (iv) to
the best of its knowledge as of the Effective Date, there are no existing or
threatened actions, suits or claims pending against it with respect to the
Teijin Technology or the Teijin Know-How; and (v) to the best of its knowledge
as of the Effective Date, neither the Teijin Technology nor the Teijin Know-How
includes intellectual property licensed from third parties that would require
CombiChem to pay to such third parties a royalty *** .
11.2 CombiChem. CombiChem represents and warrants on its own behalf and
on behalf of its Affiliates that: (i) it has the legal right and power to extend
the rights granted in this Agreement; (ii) it has the legal power, authority and
right to enter into this Agreement, and to fully perform its obligations
hereunder; (iii) it has not previously granted, and during the term of this
Agreement will not knowingly make any commitment or grant any rights, which in
any material way conflict with the rights and licenses granted herein; (iv) to
the best of its knowledge as of the Effective Date, there are no existing or
threatened actions, suits or claims pending against it with respect to the
Licensed Technology; and (v) to the best of its knowledge as of the Effective
Date, the Licensed Technology does not include intellectual property licensed
from third parties that would require Teijin to pay to such third parties a
royalty *** .
11.3 Disclaimer. Teijin and CombiChem specifically disclaim any guarantee
that the Research Program will be successful, in whole or in part. The failure
of the Parties to successfully develop Collaboration Compounds or Products will
not constitute a breach of any representation or warranty or other obligation
under this Agreement. Neither Teijin nor CombiChem makes any representation or
warranty or guaranty that the Research Program will be successful. EXCEPT AS
OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, COMBICHEM AND TEIJIN AND THEIR
RESPECTIVE AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OR
CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE LICENSED
TECHNOLOGY, TEIJIN TECHNOLOGY, TEIJIN KNOW-HOW, LIBRARIES, ***
COMPOUNDS, *** COMPOUNDS, INFORMATION DISCLOSED PURSUANT TO ARTICLE 10
OR PRODUCTS INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF ANY LICENSED TECHNOLOGY, TEIJIN
TECHNOLOGY OR TEIJIN KNOW-HOW, PATENTED OR UNPATENTED, OR NONINFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
11.4 No Consequential Damages. In no event shall either Party to this
Agreement have any liability to the other for any special, consequential or
incidental damages arising under this Agreement under any theory of liability.
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ARTICLE 12
***
12.1 ***
***
***
***
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***
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12.2 ***
***
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***
***
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12.3 ***
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ARTICLE 13
DISPUTE RESOLUTION
13.1 General Arbitration. Any and all disputes between the Parties
arising in connection with or relating in any way to the validity, construction,
meaning, enforceability or performance of this Agreement or any of its
provisions, or the intent of the Parties in entering into this Agreement, or (to
the extent permitted by applicable law) any dispute relating to patent validity
or infringement arising under or in connection with this Agreement, shall be
settled by final and binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA").
13.2 Arbitration Procedures.
13.2.1 Any Party electing to refer a matter to arbitration pursuant
to this Article (the "Petitioner") shall promptly notify the other Party in
writing that it wishes to commence an arbitration proceeding under this Article
13 (the "Arbitration Notice"). The Arbitration Notice shall set forth: (i) the
matter being referred to arbitration, (ii) the applicable Section of this
Article 13 and (iii) the name of the individual selected by the Petitioner as
one of the arbitrators.
13.2.2 Except as otherwise provided in this Article 13, there shall
be three (3) arbitrators. Each Party shall select one (1) arbitrator. The
Petitioner having appointed the first arbitrator in the Arbitration Notice, the
other Party shall appoint the second arbitrator within twenty (20) days of
receipt of the Arbitration Notice and shall notify the Petitioner of such
appointment and submit its counter statement, if any, of the matter being
referred to arbitration; provided, however, that if the other Party fails to
make such appointment within such period, the Petitioner may request the AAA
President to appoint a second arbitrator. Within twenty (20) days dafter the
appointment of the second arbitrator, the two arbitrators shall appoint the
third arbitrator; provided, however, that if the two arbitrators are unable to
agree upon the third arbitrator within such period, either Party may request the
AAA President to appoint the third arbitrator, who shall have appropriate
qualifications in relation to the matter(s) in dispute.
13.2.3 The arbitration proceedings shall be conducted ***
*** , unless otherwise agreed by the Parties, in accordance with the
AAA Rules then in effect. *** *** . In any arbitration, the
award of the arbitrators shall be final and binding upon the Parties and
judgement upon the award may be entered in and enforced by any court of
competent jurisdiction in accordance with the New York Convention on the
Recognition and Enforcement of Arbitral Awards. The successful Party in such
arbitration, in addition to all
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other relief provided, shall be entitled to an award of all its reasonable costs
and expenses including attorney fees and deposits and payments to the AAA.
Neither Party shall be required to provide security or post bond in respect of
such costs, expenses and fees prior to rendering of an award.
13.3 Disqualification. Notwithstanding anything to the contrary herein,
no person may serve as an arbitrator pursuant to this Article 13 if such person
has a material interest or relationship (through employment, stock ownership,
business dealings or otherwise) in or with a Party involved in the arbitration
or any of its Affiliates, directors, officers or employees; provided, however,
that serving as an arbitrator hereunder shall not constitute such a material
interest or relationship for purposes of future arbitrations.
13.4 Confidentiality. All arbitration proceedings under this Article 13
shall be confidential and the arbitrators may issue appropriate protective
orders to safeguard the Parties' Confidential Information (as such capitalized
term is defined in Section 10.1 hereof). Except as required by law, neither
Party shall make (or instruct any arbitrator to make) any public announcement
with respect to the proceedings or decisions of any arbitration without the
prior written consent of the other. The existence of any dispute submitted to
arbitration pursuant to this Article 13, and the award of the arbitrators, shall
be kept in confidence by the Parties and the arbitrators, except as required in
connection with the enforcement of such award of implementation of such
decisions, as mutually agreed by the Parties or as required by law.
13.5 Equity. This Article 13 shall not limit the rights of any Party to
seek in any court of competent jurisdiction equitable relief in the
circumstances referred to herein and/or such interim relief, and only such
interim relief, as may be needed to maintain the status quo or otherwise protect
the subject matter of the arbitration until the arbitrators shall have been
appointed and shall have had an opportunity to act.
ARTICLE 14
TERM AND TERMINATION
14.1 Term. Except as set forth below, the term of this Agreement shall
begin as of the Effective Date, and shall continue in full force and effect
*** *** unless terminated as provided in this Article 14 until
Teijin or CombiChem, *** , have no remaining royalty payment
obligations *** , at which time the Agreement shall expire in its
entirety *** *** .
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14.2 Termination for Cause. Either Party to this Agreement may terminate
this Agreement in the event the other Party shall have materially breached or
defaulted in the performance of any of its material obligations hereunder, and
such default shall have continued for *** after written notice thereof
was provided to the breaching Party by the nonbreaching Party. Any termination
shall become effective at the end of such *** *** period
unless the breaching Party (or any other party on its behalf) has cured any such
breach or default prior to the expiration of the *** ; provided in the
case of a failure to pay any amount due hereunder, such default may be the basis
of termination *** *** following the date that notice of
such default was provided to the breaching Party.
14.3 Termination for Insolvency. If voluntary or involuntary proceedings
by or against a Party are instituted in bankruptcy under any insolvency law, or
a receiver or custodian is appointed for such Party, or proceedings are
instituted by or against such Party for corporate reorganization or the
dissolution of such Party, which proceedings, if involuntary, shall not have
been dismissed within *** after the date of filing, or if such Party
makes an assignment for the benefit of creditors, or substantially all of the
assets of such Party are seized or attached and not released within ***
thereafter, the other Party may immediately terminate this Agreement effective
upon notice of such termination.
14.4 Effect of Breach or Termination.
14.4.1 Accrued Obligations. Termination of this Agreement for any
reason shall not release either Party hereto from any liability which, at the
time of such termination, has already accrued to the other Party or which is
attributable to a period prior to such termination nor preclude either Party
from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement.
14.4.2 Return of Materials. Subject to the terms and conditions of
this Agreement, upon any termination of this Agreement, Teijin and CombiChem
shall promptly return to the other all Confidential Information (including,
without limitation, all Licensed Technology (in the case of Teijin) and all
Teijin Technology and Teijin Know-How (in the case of CombiChem)), received from
the other Party (except one copy of which may be retained for archival
purposes); provided, however, in the event licenses remain in effect pursuant to
Section 14.4.4 hereunder, the licensee under such license may retain all
Confidential Information required to practice under such license.
14.4.3 Post-Termination Product Sales. In the event of the
cancellation or termination of any license rights with respect to an Product
prior to the expiration of this Agreement, inventory of the Product may be sold
for up to *** after date of termination, provided earned royalties are
paid thereon.
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14.4.4 Licenses. The licenses granted to *** herein shall
terminate in the event of a termination by *** pursuant to Section
14.2 or 14.3. ***
***
***
***
***
***
the terms and conditions of this Agreement. If more than one Product is being
commercially developed or exploited by *** hereunder and a breach
entitling *** to terminate this Agreement relates solely to a single
Product, then *** shall be entitled to terminate this Agreement only
with respect to the applicable Product.
14.5 Survival. Articles 6, 7, 8, 9, 10, 11, 12, 13 and 15 of this
Agreement, as well as Sections 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 5.3, 14.4 and
this Section 14.5 shall survive the expiration or termination of this Agreement
for any reason.
ARTICLE 15
MISCELLANEOUS
15.1 Governing Laws. This Agreement and any dispute arising from the
performance or breach hereof shall be governed by and construed and enforced in
accordance with, the laws of the state of California, without reference to
conflicts of laws principles.
15.2 No Implied Licenses. Only the licenses granted pursuant to the
express terms of this Agreement shall be of any legal force or effect. No other
license rights shall be created by implication, estoppel or otherwise.
15.3 Waiver. It is agreed that no waiver by either Party hereto of any
breach or default of any of the covenants or agreements herein set forth shall
be deemed a waiver as to any subsequent and/or similar breach or default.
15.4 Assignment. This Agreement shall not be assignable by either Party
to any third party hereto without the written consent of the other Party hereto,
*** except either Party may assign this Agreement, without such
consent, to an entity that acquires all or substantially all of the business or
assets of such Party to which this Agreement pertains, whether by merger,
reorganization, acquisition, sale, or otherwise. This Agreement shall be binding
upon and accrue to the benefit any permitted assignee, and any such assignee
shall agree to perform the obligations of the assignor.
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15.5 Independent Contractors. The relationship of the Parties hereto is
that of independent contractors. The Parties hereto are not deemed to be agents,
partners or joint venturers of the others for any purpose as a result of this
Agreement or the transactions contemplated hereby.
15.6 Compliance with Laws. In exercising their rights under this
Agreement, the Parties shall fully comply in all material respects with the
requirements of any and all applicable laws, regulations, rules and orders of
any governmental body having jurisdiction over the exercise of rights under this
Agreement including, without limitation, those applicable to the discovery,
development, manufacture, distribution, import and export and sale of
pharmaceutical products pursuant to this Agreement.
15.7 Patent Marking. Each Party agrees to mark *** all Products
sold pursuant to this Agreement in accordance with the applicable statute or
regulations relating to patent marking in the country or countries of
manufacture and sale thereof.
15.8 Notices. All notices, requests and other communications hereunder
shall be in writing and shall be personally delivered or by registered or
certified mail, return receipt requested, postage prepaid, in each case to the
respective address specified below, or such other address as may be specified in
writing to the other Parties hereto and shall be deemed to have been given upon
receipt:
CombiChem: CombiChem, Inc.
9050 Camino Santa Fe
San Diego, California 92121
U.S.A.
Attn: Chief Executive Officer
Teijin: Teijin Limited
1-1, Uchisaiwai-cho 2-chome
Chiyoda-ku, Tokyo
Japan
Attn: General Manager of the Planning Department,
Medical and Pharmaceutical Group
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15.9 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision, and the Parties shall amend the Agreement to the extent
feasible to lawfully include the substance of the excluded term to as fully as
possible realize the intent of the Parties and their commercial bargain.
15.10 Force Majeure. Nonperformance of either Party (except for payment
obligations) shall be excused to the extent that performance is rendered
impossible by strike, fire, earthquake, flood, governmental acts or orders or
restrictions, failure of suppliers, or any other reason where failure to perform
is beyond the reasonable control and not caused by the negligence, intentional
conduct or misconduct of the nonperforming Party, provided such Party uses
diligent efforts to resume performance as promptly as possible.
15.11 Complete Agreement; Amendment. This Agreement with its Exhibits
constitutes the entire agreement between the Parties with respect to the subject
matter hereof. No amendment or change hereof or addition hereto shall be
effective or binding on either of the Parties hereto unless reduced to writing
and executed by the respective duty authorized representatives of CombiChem and
Teijin.
15.12 Headings. The captions to the several Sections hereof are not a part
of this Agreement, but are included merely for convenience of reference only and
shall not affect its meaning or interpretation.
15.13 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same agreement.
[Remainder of This Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed by their authorized representatives and delivered in duplicate
originals as of the Effective Date.
TEIJIN LIMITED COMBICHEM, INC.
By: /s/ Takeshi Hara By: /s/ Vicente Anido, Jr.
-------------------------------- ---------------------------------
Name: Takeshi Hara Name: Vicente Anido, Jr.
------------------------------ -------------------------------
Title: Director, Member of the Board Title: President & CEO
----------------------------- ------------------------------
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EXHIBIT A
Research Plan
(Outline)
***
***
***
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A-1
<PAGE> 43
EXHIBIT B
Library Compounds
Each tube will contain a minimum of **** of a Library Compound
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Confidential Treatment and filed separately with the Commission.
B-1
<PAGE> 44
EXHIBIT C
Initial Representatives on the Research Committee
CombiChem: ***
***
***
Teijin: ***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
C-1
<PAGE> 45
AMENDMENT TO THE COLLABORATION AGREEMENT
This Amendment (the "Amendment"), effective as of the date March 29, 1997
(the "Effective Date"), is made by and between CombiChem, Inc., a California
corporation, having a principal place of business at 9050 Camino Santa Fe, San
Diego, California 92121, U.S.A. ("CombiChem") and Teijin Limited, an entity
organized and existing under the laws of Japan, having a principal place of
business at 6-7 Minami-hommachi 1-chome, Chuo-ku, Osaka 541, Japan ("Teijin").
BACKGROUND
A. CombiChem and Teijin entered into the COLLABORATION AGREEMENT dated
March 29, 1996 relating to *** *** (hereinafter referred to
as Original Agreement); and
B. CombiChem and Teijin desire to amend the Original Agreement in order
to modify the Research Program (as defined in the Original Agreement) and
*** *** (as defined in the Original Agreement);
NOW THEREFORE, for and in consideration of the covenants, conditions, and
undertakings hereinafter set forth, it is agreed by and between CombiChem and
Teijin as follows:
ARTICLE 1
CombiChem and Teijin hereby agree that the ***
***
***
ARTICLE 2
CombiChem and Teijin agree to modify the Original Agreement as follows:
1.25 "Library" shall mean a chemical compound library whose design has been
approved by the Research Committee (as defined below) containing:
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<PAGE> 46
i) for the *** period beginning *** ***
prepared by CombiChem
ii) for the *** period beginning *** ***
prepared by CombiChem
specifically for screening the Collaboration based on proprietary
structures (a) with activity disclosed by Teijin to CombiChem or (b)
generated by CombiChem on behalf of Teijin, in each case, in connection
with the Collaboration.
1.29 Section 1.29 will be amended so reflect the following:
*** Activity" shall mean
*** ***
***
***
2.1.1 (a) During the Research Program Term, CombiChem shall synthesize libraries
as follows:
i) for the *** period *** libraries
ii) for the *** period *** libraries
6.2 Section 6.2 will be amended to reflect the following:
<TABLE>
<CAPTION>
Contact Year Aggregate Annual Research Fee
------------ -----------------------------
<S> <C>
*** ***
***
</TABLE>
EXHIBIT A Exhibit A attached to the Original Agreement will be supplemented
with the attached Exhibit A-2 for *** period beginning
*** .
EXHIBIT B Exhibit B attached to the Original Agreement will be supplemented
with the attached Exhibit B-2 for *** period beginning
*** .
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EXHIBIT C Exhibit C attached to the Original Agreement will be supplemented
with the attached Exhibit C-2 for *** period beginning
*** .
ARTICLE 3
This Amendment shall be effective as of the Effective Date.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their authorized representatives and delivered in duplicate
originals as of the Effective Date.
TEIJIN LIMITED COMBICHEM, INC.
By: /s/ Tatsuyuki Naruchi By:/s/ Vicente Anido, Jr.
------------------------------- -----------------------------------
Name: Tatsuyuki Naruchi Name: Vicente Anido, Jr.
Title: Managing Director, General Manager Title: President & C.E.O.
Planning & Research Division
Medical & Pharmaceutical Group
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EXHIBIT A-2
Research Plan (Outline)#
***
***
***
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Confidential Treatment and filed separately with the Commission.
<PAGE> 49
EXHIBIT B-2
LIBRARY COMPOUNDS
Each tube will contain a minimum of *** of a Library Compound.
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Confidential Treatment and filed separately with the Commission.
<PAGE> 50
EXHIBIT C-2
Representatives on the Research Committee
Teijin: ***
***
***
CombiChem: ***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 1
EXHIBIT 10.20
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
BETWEEN
ROCHE BIOSCIENCE
AND
COMBICHEM, INC.
October 25, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS............................................................... 1
2. RESEARCH COLLABORATION.................................................... 6
2.1 CCI Responsibilities............................................. 6
2.2 RBS Responsibilities............................................. 6
2.3 Participation by RBS Affiliates.................................. 6
3. RESEARCH PROGRAMS......................................................... 6
3.1 Selection of Approach............................................ 6
3.2 Lead Generation Program.......................................... 6
3.3 Lead Evolution Program........................................... 7
3.4 Lead Optimization Program........................................ 7
3.5 *** .......... 7
3.6 *** ............ 7
3.7 Extension of Programs............................................ 7
4. TARGETS................................................................... 8
4.1 Initial Targets.................................................. 8
4.2 Optional Targets................................................. 8
4.3 ***.............................................................. 8
4.3.1 ***....................................................... 8
4.3.2 ***....................................................... 8
4.4 *** .......................... 9
4.5 Refining Collaboration Targets................................... 9
4.6 Maximum Number of Targets........................................ 9
5. TARGET EXCLUSIVITY........................................................ 9
5.1 Collaboration Target Exclusivity................................. 9
5.2 *** ....................................... 9
6. COLLABORATION COMPOUNDS................................................... 10
6.1 Collaboration Compound Exclusivity............................... 10
6.2 Pre-Existing and Restricted Compounds............................ 10
6.3 Intellectual Property Rights..................................... 10
6.4 Screening Rights................................................. 10
6.5 Active Collaboration Compounds Against Related Targets........... 10
6.6 Supply of Collaboration Compounds................................ 11
7. RESEARCH MANAGEMENT & PLAN................................................ 11
7.1 Research Management Committee.................................... 11
</TABLE>
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7.2 Project Teams.................................................... 12
7.3 Research Plans................................................... 12
8. COLLABORATION TERM AND TERMINATION........................................ 12
8.1 Term............................................................. 12
8.2 *** ............................................... 12
8.3 Termination by RBS or CCI........................................ 12
8.4 Termination of Research Funding.................................. 12
9. PAYMENT OBLIGATIONS....................................................... 13
9.1 Project Initiation Fee........................................... 13
9.2 Research Funding................................................. 13
9.3 Milestone Payments............................................... 13
9.4 Royalties........................................................ 13
9.4.1 Royalty Rates........................................... 13
9.4.2 *** ........................................... 14
9.4.3 *** ..................................... 14
9.5 Option to Purchase Equipment..................................... 14
10. LOGISTICS OF PAYMENT; REPORTS; RECORDS; AUDITS............................ 14
10.1 Payment and Reports.............................................. 14
10.2 Method of Payment................................................ 14
10.3 Roche Exchange Rate.............................................. 15
10.4 CCI Exchange Rate................................................ 15
10.5 Financial Records and Audit Rights............................... 15
10.6 Time Records..................................................... 16
10.7 Taxes............................................................ 16
11. LICENSE GRANT............................................................. 16
11.1 CCI Grant to RBS................................................. 16
11.2 RBS Due Diligence Failure........................................ 16
11.2.1 RBS Grant Back to CCI................................... 16
11.2.2 *** .................................... 16
11.2.3 *** .................................... 17
12. TERM AND TERMINATION OF THE AGREEMENT..................................... 17
12.1 Term............................................................. 17
12.2 Termination...................................................... 17
12.3 Results of Termination........................................... 17
13. CONFIDENTIAL INFORMATION.................................................. 17
13.1 Nondisclosure.................................................... 17
13.2 Exceptions....................................................... 18
14. PUBLICATIONS.............................................................. 18
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15. PUBLIC STATEMENTS......................................................... 18
16. *** ........................................................... 19
17. ASSIGNABILITY............................................................. 19
18. DISPUTE RESOLUTION PROCEDURES............................................. 19
18.1 Senior Executives Discussions.................................... 19
18.2 Non-Binding Mediation............................................ 19
18.3 Binding Arbitration.............................................. 20
18.4 Injunctive Relief................................................ 20
19. NOTICES................................................................... 20
20. INDEPENDENT CONTRACTOR.................................................... 21
21. SURVIVAL.................................................................. 22
22. ADDITIONAL TERMS.......................................................... 22
22.1 Entire Agreement................................................. 22
22.2 Amendments; No Waiver............................................ 22
22.3 Validity......................................................... 22
22.4 Headings......................................................... 22
22.5 Counterparts..................................................... 22
</TABLE>
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COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
THIS COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (the
"Agreement") is entered into on October 25, 1996 (the "Effective Date"), by and
between ROCHE BIOSCIENCE, a division of Syntex (U.S.A.) Inc., a Delaware
corporation, having offices at 3401 Hillview Avenue, Palo Alto, California 94304
("RBS") and COMBICHEM, INC. a California corporation having offices at 9050
Camino Santa Fe, San Diego, California 92121 ("CCI"). RBS and CCI may be
referred to herein as a "Party" or, collectively, as "Parties."
WHEREAS, CCI has developed and owns certain drug discovery technology
and intellectual property rights, including chemical library design software,
combinatorial organic synthesis methods, chemical libraries suitable for high
throughput biological screening assays and medicinal chemistry;
WHEREAS, the Parties wish to collaborate with the objective of
accelerating RBS's drug discovery activities using CCI Technology (as defined
below) in Research Programs (as defined below) against Collaboration Targets (as
defined below) (the "Collaboration");
NOW, THEREFORE, the Parties agree as follows:
1. DEFINITIONS
1.1 "Additional Royalties" has the meaning set forth in Section 9.4.2.
1.2 "ADR" has the meaning set forth in Section 18.2.
1.3 "Affiliate" of a Party means any corporation or other business
entity controlled by, controlling or under common control with such Party. For
this purpose "control" shall mean direct or indirect beneficial ownership of
more than fifty percent (50%) of the voting or income interest in such
corporation or other business entity, or if not meeting the preceding
requirement, any company owned or controlled by or owning or controlling a Party
at the maximum control or ownership right permitted in the country where such
company exists; provided, however, Genentech, Inc., with offices located at 460
Point San Bruno Boulevard, South San Francisco, California, 94080, shall not be
considered an Affiliate of RBS unless RBS so notifies CCI that Genentech shall
be deemed an Affiliate.
1.4 "CCI Net Sales" means the gross sales invoiced by CCI or its
Affiliates or sublicensees for Returned Products to non-Affiliated third parties
less (i) actual deductions of returns (including withdrawals and recalls),
rebates (price reductions, including Medicaid and similar types of rebates e.g.
chargebacks), volume (quantity) discounts, discounts granted at the time of
invoicing, sales taxes and other taxes (other than income taxes) directly linked
to and included in the gross sales amount as computed on a product-by-product
basis for the
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<PAGE> 6
countries concerned, whereby the amount of such sales in foreign currencies is
converted into United States dollars in accordance with Section 10.4 (the "CCI
Adjusted Gross Sales"), and (ii) *** *** sales related deductions which are not
accounted for on a product-by-product basis.
1.5 "CCI Technology" means those CCI Patents and know-how related
exclusively to the Collaboration Compounds.
1.6 "Collaboration" has the meaning set forth in the preamble.
1.7 "Collaboration Compound Exclusivity Period" for a Collaboration
Compound means (a) with respect to a Collaboration Compound with Target
Activity, the earlier of (i) the publication of a Patent covering the
Collaboration Compound or (ii) *** following the end of the applicable Research
Program Period; and (b) with respect to a Collaboration Compound with no Target
Activity, the earlier of (i) the publication of a Patent covering the
Collaboration Compound or (ii) *** following the end of the applicable Research
Program Period.
1.8 "Collaboration Compounds" means Library Compounds and Derivative
Compounds synthesized under the direction of the RMC, by either RBS or CCI or
their respective Affiliates.
1.9 "Collaboration Library" means a library synthesized under the
direction of the RMC, containing compounds designed to provide information
regarding activity against a specific Collaboration Target.
1.10 "Collaboration Product(s)" means any product containing a compound
which has demonstrated activity against a Collaboration Target and is either (i)
a Library Compound or (ii) a Derivative Compound.
1.11 "Collaboration Target" means either an Initial Target or an
Optional Target.
1.12 "Collaboration Target Exclusivity Period" for a Collaboration
Target means *** *** .
1.13 "Collaboration Term" has the meaning set forth in Section 8. 1.
1.14 *** has the meaning set forth in Section 9.4.3.
1.15 "Confidential Information" includes (i) all information and
materials received by either Party from the other Party either prior to
execution of or pursuant to this Agreement; (ii) all structure-activity data or
structure data relating to a Collaboration Compound; and (iii) the material
financial terms of this Agreement.
1.16 "Development Candidate" means a Collaboration Compound that has
been selected by RBS for *** studies for an Initial Target, Optional Target or
Related Target.
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1.17 "Derivative Compound" is a compound which meets the following
criteria:
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*** ***
*** ***
*** ***
***
***
***
--- ---
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
--- ---
***
***
***
***
--- ---
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1.18 "$" or "dollar" means United States currency.
1.19 "Due Diligence" means *** *** *** ***.
1.20 "Field" means *** *** .
1.21 "First Commercial Sale" of a Product shall mean the first sale for
use or consumption of such Product in a country after required marketing and
pricing approval has been granted by the governing health regulatory authority
of such country. Sale to an Affiliate or sublicensee shall not constitute a
First Commercial Sale unless the Affiliate or sublicensee is the end user of the
Product.
1.22 "Flat Fee" has the meaning set forth in Section 11.2.2.
1.23 "Initial Targets" has the meaning set forth in Section 4. 1.
1.24 "Lead Evolution Program" has the meaning set forth in Section 3.3.
1.25 "Lead Generation Program" has the meaning set forth in Section
3.2.
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1.26 "Lead Optimization Program" has the meaning set forth in Section
3.4.
1.27 "Library Compound" means a compound contained in a Collaboration
Library and which compound is not a Pre-existing Compound or a Restricted
Compound *** ***
1.28 "Losses" has the meaning set forth in Section 16.
1.29 "Net Sales" means the gross sales invoiced by RBS or its
Affiliates or sublicensees for Products to non-Affiliated third parties less (i)
actual deductions of returns (including withdrawals and recalls), rebates (price
reductions, including Medicaid and similar types of rebates e.g. chargebacks),
volume (quantity) discounts, discounts granted at the time of invoicing, sales
taxes and other taxes (other than income taxes) directly linked to and included
in the gross sales amount as computed in the central Roche's Swiss Francs Sales
Statistics on a product-by-product basis for the countries concerned, whereby
the amount of such sales in foreign currencies is converted into Swiss Francs in
accordance with Section 10.3 (the "Adjusted Gross Sales"), and (ii) *** of
Adjusted Gross Sales for those sales related deductions which are not accounted
for on a product-by-product basis.
1.30 "Non-Royalty Bearing Component(s)" has the meaning set forth in
Section 9.4.3.
1.31 "Optional Targets" means a Target that is added to the
Collaboration in accordance with Section 4.2.
1.32 "Patent" means (i) valid and enforceable Letters Patent, including
any extension (including Supplemental Protection Certificate), registration,
confirmation, reissue, continuation, divisionals, continuation-in-part,
reexamination or renewal thereof, and (ii) pending applications for any of the
foregoing.
1.33 "Patent Protected" means that a Product is covered by a Valid
Claim of patent rights with respect to such Product in the country where sold.
1.34 "Pre-existing Compound" means any compound that is in existence at
the commencement of a Research Program which may be contributed to the
Collaboration Library by RBS or CCI and with such contributed compound owned by
any of RBS, CCI, their Affiliates or a Third Party.
1.35 *** *** ***.
1.36 "Product(s)" means Collaboration Product(s) and/or Related
Product(s).
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<PAGE> 9
1.37 "Project Leader" means the person appointed by a Party to
supervise and be accountable for that Party's responsibilities with respect to a
Research Program.
1.38 "Publications Committee" shall consist of the co-chairs of the
RMC.
1.39 *** shall mean any product containing a compound which has
demonstrated activity against a *** in accordance with Section 6.5 and is either
(i) a Library Compound or (ii) a Derivative Compound.
1.40 *** means a Target which the parties have identified, in
accordance with Section 4.3, as *** to a Collaboration Target.
1.41 "*** Exclusivity Period" means *** *** .
1.42 "*** Notice" has the meaning set forth in Section 6.5.
1.43 "Research Program" means any or all of a Lead Evolution Program or
a Lead Generation Program or a Lead Optimization Program.
1.44 "Research Program Period" means two years from commencement of a
Lead Generation Program and one year from commencement of a Lead Optimization
Program or a Lead Evolution Program, unless any such Research Program is
terminated early or extended pursuant to the terms of this Agreement.
1.45 "Restricted Compound" means a compound that RBS may synthesize
during the course of a Research Program *** against a Target other than a
Collaboration Target *** but which RBS screens against a Collaboration Target
***.
1.46 "Returned Product" has the meaning set forth in Section 11.2.l.
1.47 "Roche" means RBS and its Affiliates.
1.48 "Royalty Bearing Component(s)" has the meaning set forth in
Section 9.4.3.
1.49 "Royalty Paying Party" has the meaning set forth in Section 10.5.
1.50 "Royalty Receiving Party" has the meaning set forth in Section
10.5.
1.51 "Royalty Term" means, in the case of any Product, in any country,
the period of time commencing on the First Commercial Sale and ending upon the
later of (a) *** years from the date of First Commercial Sale in such country;
or (b) the expiration of the last to expire issued Patent with claims covering
that Product in the relevant country.
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1.52 "Target" means a biomolecular entity that a small molecule is
synthesized against demonstrating relevant activity.
1.53 "Target Activity" means having activity that meets *** of the
criteria specified for the *** for the appropriate Collaboration Target during
the relevant Research Program Period, which criteria are set forth on Appendix
A.
1.54 "Territory" means *** .
1.55 "Third Party" means any entity other than CCI or RBS or an
Affiliate of CCI or RBS.
1.56 "UIL" means CCI's proprietary Universal Informer Library(TM).
1.57 "Valid Claim" means a claim of an issued Patent which claim has
not lapsed, been canceled or become abandoned and has not been declared invalid
by an unreversed and unappealable decision or judgment of a court or other
appropriate body of competent jurisdiction, and which has not been admitted to
be invalid or unenforceable through reissue or disclaimer.
2. RESEARCH COLLABORATION
2.1 CCI RESPONSIBILITIES. CCI will conduct Research Programs against
Collaboration Targets in accordance with the terms of this Agreement.
2.2 RBS RESPONSIBILITIES. RBS will provide funding for the
Collaboration as outlined in Article 9.2, provide screening, biological, and
structural data to CCI with respect to the Collaboration Compounds necessary for
CCI to perform its duties under this Agreement, and will assume scientific,
financial and administrative responsibility for screening and biological support
activities, drug development and regulatory filings during and after the term of
Collaboration in accordance with the terms of this Agreement.
2.3 PARTICIPATION BY RBS AFFILIATES. Upon an Affiliate of RBS agreeing
in writing to be bound by the terms and conditions of this Agreement, RBS may
propose Optional Targets on behalf of such Affiliate. Employees of such
Affiliate may become Project Leaders and RBS may designate employees of such
Affiliate to be members of the RMC as specified in Article 7 hereof.
3. RESEARCH PROGRAMS
3.1 SELECTION OF APPROACH. The parties shall agree upon one of the
approaches set forth below for each Research Program against each Collaboration
Target. The start date of each Research Program shall be as decided by the RMC,
but at least one of the Research Programs for the Initial Targets shall have
commenced by *** , and the final two Research Programs for the Initial Targets
shall have commenced *** .
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3.2 LEAD GENERATION PROGRAM. In a Lead Generation Program, only the
Target is known. There are no robust structural hypotheses available that will
facilitate rapid inhibitor, agonist or antagonist design. The Lead Generation
Program requires use of the UIL. Potential Development Candidates will be
identified through iterative generations of Collaboration Libraries resulting in
compounds with increased selectivity/affinity with respect to the Collaboration
Target. A Lead Generation Program will last *** unless *** Section 8.3 or
extended pursuant to Section 3.7.
3.3 LEAD EVOLUTION PROGRAM. A Lead Evolution Program is a research
program in which RBS provides CCI data on a lead series for evolution to a
different structural series or there exists a robust structural hypothesis
available that will facilitate rapid inhibitor, agonist or antagonist design.
Potential Development Candidates will be identified through iterative
generations of Collaboration Libraries. A Lead Evolution Program will last ***
unless *** extended pursuant to Section 3.7.
3.4 LEAD OPTIMIZATION PROGRAM. A Lead Optimization Program is a
research program in which RBS provides CCI with data on a suboptimal lead series
for iteration and refinement. A Lead Optimization Program will last *** unless
*** extended pursuant to Section 3.7.
3.5 ***
***
***
***
***
***
***
***
***
***
***.
3.6 ***
***
***
***
***
***
***
***
***
***
***.
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3.7 EXTENSION OF PROGRAMS. The term of any Research Program may be
extended up to an additional *** per Research Program upon the recommendation of
the RMC, provided, however, that the aggregate amount of extensions for Research
Programs shall not exceed an incremental aggregate total of FTEs equal to ***
*** over the life of this Agreement for all such Research Program extensions.
4. TARGETS
4.1 INITIAL TARGETS. The Collaboration will initially focus on the
following Targets: ***
***
***
*** (collectively, the "Initial
Targets"). Prior to the proposed commencement date of a Research Program for an
Initial Target, RBS may substitute another Target as an Initial Target.
Acceptance of a proposed substitute Initial Target shall follow the procedures
set forth in Section 4.2 for selection of Optional Targets.
4.2 OPTIONAL TARGETS. During the Collaboration Term, RBS may add up to
*** additional Targets to the Collaboration as Optional Targets with the
Research Program for such Optional Target to begin with ninety (90) days of
notification or as mutually agreed by the parties. If RBS is interested in
adding a Target to the Collaboration, RBS shall notify CCI in writing that it
wishes to make such Target an Optional Target. ***
***
***
***
***.
*** . The RMC will establish the specific scientific
achievements for such Target that correspond to (i) the Milestone Structure
Schedule in Appendix A and (ii) the commercial terms of Appendix C. Any such
scientific achievements must be mutually-agreed between RBS and CCI ***
*** , such Target may be added to the Collaboration as an Optional Target.
Mutual agreement under this Section 4.2 and under Section 4.3 shall mean the
agreement of RBS and CCI without recourse to the dispute resolution mechanism
set forth in Section 7. 1.
4.3 ***
***
***.
4.3.1 ***
*** . Related Targets for the Initial Targets will be
identified and agreed upon by RBS and CCI and will be detailed in a Appendix B.
*** for the *** identified and agreed upon by RBS and CCI prior to commencement
of the Research Program for such Optional Target, *** ***
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4.3.2 ***
Either Party may identify Targets as being *** throughout the applicable
Research Program, *** arguments *** , if any, and set forth in an amendment to
*** ; ***
***
***
*** .
4.4 *** . If RBS proposes to make a *** *** , the provisions set forth
in Section 4.3 relating to the format and approach would supersede the
provisions of Section 4.2; provided, however, that the commercial terms of
Appendix C rather than Appendix D shall apply to such *** . If there is a
dispute, the dispute resolution mechanism set forth in Section 7.1 shall be
utilized.
4.5 REFINING COLLABORATION TARGETS. The RMC may refine the definition
of a Collaboration Target based upon reasonable scientific judgment.
4.6 MAXIMUM NUMBER OF TARGETS. The Collaboration may be expanded to a
total of *** projects subject to the provisions of Section 4.2; provided,
however that after the Collaboration initiates *** Collaboration Targets, RBS
shall pay an upfront fee of *** *** Optional Targets (Collaboration Target
numbers *** ) upon the commencement of the Research Program for each such
Optional Target.
5. TARGET EXCLUSIVITY
5.1 COLLABORATION TARGET EXCLUSIVITY. During the Collaboration Target
Exclusivity Period, CCI shall not work on such Collaboration Target with any
party other than RBS or its Affiliates; provided, however, ***
***
***
***
***
***
*** . In addition, following termination of the relevant
Collaboration Target Exclusivity Period, CCI shall be free to work with any
Third Party on a Collaboration Target.
5.2 *** . During the *** period, CCI will not work on any *** with any
party other than RBS or its Affiliates except as set forth herein.
***
***
***
***
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***
***
*** . If the ***
is not a business day, the *** shall be deemed to be the next business day
following. Upon commencement of the Research Program, such *** becomes an
Optional Target and all of the terms and conditions applicable to a Optional
Target, including but not limited to, application of the Collaboration Target
Exclusivity Period rather than the *** *** apply to such Target. Nothing
contained in this Agreement shall imply that *** *** *** .
6. COLLABORATION COMPOUNDS
6.1 COLLABORATION COMPOUND EXCLUSIVITY. Except as set forth in Section
6.2 and 6.4 and subject to Section 11.2, RBS shall have exclusive rights with
respect to the Collaboration Compounds during the applicable Collaboration
Compound Exclusivity Period.
6.2 PRE-EXISTING AND RESTRICTED COMPOUNDS. CCI shall have no rights to
any RBS Pre-existing Compound or to *** *** . RBS shall have no rights to any
CCI Pre-existing Compound unless and until such *** *** that CCI shall retain
all rights to all compounds in the UIL.
6.3 INTELLECTUAL PROPERTY RIGHTS. Subject to Section 11.2, RBS shall
retain exclusive rights to all intellectual property with respect to the
Collaboration Compounds during the applicable Collaboration Compound Exclusivity
Period. RBS shall not obtain any rights in the UIL as a result of the
Collaboration. RBS shall be responsible for filing, maintaining and prosecuting
all Patents with claims covering Collaboration Compounds at its sole expense.
Immediately prior to filing of a patent application for a Collaboration
Compound, CCI shall assign all intellectual property rights it may have in such
Collaboration Compound to RBS or its designee. RBS may elect upon *** prior
written notice to CCI (given at least *** prior to any relevant deadline to (a)
discontinue prosecution or maintenance or (b) not to file or conduct any further
activities (including conducting any interferences, re-examinations, reissues,
or oppositions) with respect to a Patent. CCI shall have the right to request
that RBS or its designee prosecute, maintain, file or conduct further
activities. If RBS or its designee elects not to file, maintain, or prosecute a
Patent, CCI shall have the right to take over such filing, maintenance or
prosecution, at its sole expense.
6.4 SCREENING RIGHTS. ***
***
***
***
***
***
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***
***
***.
6.5 ACTIVE COLLABORATION COMPOUNDS AGAINST RELATED TARGETS. If either
Party determines that a Collaboration Compound has in-vitro activity, *** ***
(which level of in-vitro activity may be altered for a particular *** at such
time as the *** is identified in accordance with Section 4.3), such Party shall
provide written notice to the other Party within *** following such
determination (the "Related Target Notice"). Within *** of receipt of such *** ,
the *** *** on terms and conditions as set forth in Appendix C with the specific
lead approach to be determined by the RMC and other terms and conditions to be
mutually agreed. If RBS and CCI are unable to come to mutually-agreeable terms
within an additional *** *** , RBS will notify CCI (a) whether RBS (or Roche or
a sublicensee) will pursue independent development of the Collaboration Compound
against the Related Target in which case CCI shall receive compensation as set
forth in Appendix D or (b) if RBS does not choose such independent development,
CCI may pursue independent development of the Collaboration Compound *** in
which case RBS shall receive compensation as set forth in Appendix D; or (c)
that CCI and RBS may each pursue independent development of the Collaboration
Compound against the *** in which case *** . *** .
6.6 SUPPLY OF COLLABORATION COMPOUNDS. Aliquots of at least *** of any
Collaboration Compound that has been synthesized and characterized will be
prepared and given to RBS within *** of such synthesis and characterization. CCI
shall replenish that amount within *** of RBS's reasonable request. CCI shall
keep aliquots of any Collaboration Compound that has been synthesized at CCI.
RBS will have primary responsibility for synthesizing large amounts of
Collaboration Compounds, but CCI will assist RBS as agreed to by CCI's Vice
President of Chemistry at the time of such request.
7. RESEARCH MANAGEMENT & PLAN
7.1 RESEARCH MANAGEMENT COMMITTEE. The design, review and conduct of
the Research Program for each Collaboration Target will be coordinated by a
Research Management Committee ("RMC"), which will meet quarterly. The RMC will
consist of an equal number of members from RBS (or Roche if RBS so elects) and
CCI, will include the Project Leaders and other appropriate representatives from
RBS and CCI as mutually agreed, and will be co-chaired by scientists from each
of RBS and CCI. Decisions of the RMC shall be by consensus. If a decision is not
reached by the RMC with respect to management of the applicable Research Program
during the term of such Research Program, the dispute will be referred to the
co-chairs of the RMC. The co-chairs of the RMC will initially be the *** *** and
subsequently may change as mutually-agreed upon by the Parties. If the co-chairs
of the RMC are unable to resolve the dispute, the dispute will be referred to
*** and to a ***
*** Portions of this page have been omitted pursuant to a request for
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*** . If they are unable to reach an agreement, such dispute will be
referred to CCI's *** and the *** , *** of the Inflammatory Disease Unit of RBS.
If such officers are unable to reach an agreement, CCI's *** *** will have the
option to present the issues/circumstances surrounding the dispute to RBS' *** .
However, such dispute shall be *** .
7.2 PROJECT TEAMS. Project Teams, comprised of an equal number of
representatives from RBS and CCI, will be established to coordinate individual
programs, and will meet monthly. Each Project Team will be co-chaired by two
Project Leaders, one from RBS and one from CCI, who will also serve on the RMC.
The Project Team may be expanded to include additional members upon the mutual
agreement of the Parties.
7.3 RESEARCH PLANS. The RMC shall prepare a Research Plan at the
beginning of each Research Program which may be refined and amended by the RMC
as appropriate.
8. COLLABORATION TERM AND TERMINATION
8.1 TERM. The initial term of the Collaboration shall be *** from the
date of the first meeting of the RMC (the "Collaboration Term"). The parties may
extend the term of the Collaboration upon mutual agreement. In addition, the
term of any Research Program initiated on a Collaboration Target will last for
that length of time set forth in Article 3 for each type of Research Program. A
Research Program may begin any time during the Collaboration Term and may extend
beyond the term of the Collaboration Term, i.e. a Lead Generation Program that
begins at the end of the Collaboration Term may terminate *** later.
8.2 *** . *** *** *** ; provided, however, that if the RMC ***
***
***
***
*** .
8.3 TERMINATION BY RBS OR CCI. A Research Program may be terminated by
RBS or CCI upon *** to the other party if (a) *** *** by the RMC or (b) *** ,
whether by RBS, CCI or otherwise. Either Party may terminate a Research Program
if there is a material breach which remains uncured for *** following notice of
such material breach by the other Party with respect to the relevant Research
Program.
8.4 TERMINATION OF RESEARCH FUNDING. All Research Funding for a given
Research Program shall terminate upon termination of such Research Program
except as set forth in *** . Following termination of a Research Program
pursuant to Section 8.2 or Section 8.3, RBS and CCI shall be free to pursue
independent opportunities with respect to the relevant Collaboration Target,
unless the
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
12
<PAGE> 17
termination of the Research Program ***
***
***
*** . Following termination of a Research Program pursuant to Section
8.3 or pursuant to Section 8.2 if no milestone payments have been made, the
Collaboration Compounds shall be deemed to have ***
***
of the relevant Collaboration Compound Exclusivity Period, provided, however,
that if the termination of the Research Program is due to CCI's material uncured
breach (subject to the cure provisions of Section 8.3), then CCI shall be
prevented from pursuing any such opportunities for the longer of (i) the
relevant Collaboration Compound Exclusivity Period or (ii) *** after any such
termination.
9. PAYMENT OBLIGATIONS
9.1 PROJECT INITIATION FEE. RBS shall pay CCI a one-time only,
non-refundable, non-contingent project initiation fee of *** upon execution of
this Agreement.
9.2 RESEARCH FUNDING. Research Programs will be generally staffed by
CCI senior scientific management and approximately ***
***
***
***
***
***
***
***
***.
9.3 MILESTONE PAYMENTS. The milestone payments set forth in Appendix C
(as further specified in the applicable Research Program set forth in Appendix
A) shall be made by RBS within *** of (i) notice to RBS by CCI of the
achievement of or (ii) achievement by RBS of each such milestone. The milestone
payments set forth in Appendix D shall be made by the applicable Party within
*** of the achievement of each such milestone.
9.4 ROYALTIES.
9.4.1 ROYALTY RATES. During the Royalty Term, RBS will pay
CCI royalties *** as follows:
<TABLE>
<S> <C> <C> <C> <C>
*** *** *** *** ***
--- --- --- --- ---
*** *** *** *** ***
--- --- --- --- ---
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
13
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
*** *** *** *** ***
--- --- --- --- ---
*** *** *** *** ***
--- --- --- --- ---
</TABLE>
(1) Royalties *** on the portion of *** of up to and including *** on
the portion
of *** above ***.
(2) Royalties *** on the portion of *** of up to and including *** on
the portion of *** above ***.
9.4.2 *** . ***
***
***
***
***
***
***
***
9.4.3 *** . If a Product includes *** for *** *** and a
component which is diagnostically useable or therapeutically active alone or in
a combination which does not require a *** *** , then Net Sales shall be the
amount which is normally received by RBS, its Affiliates or sublicensees from a
sale of the Royalty Bearing Component(s) in an arm's length transaction with a
Third Party. If the *** *** sold separately, then Net Sales upon which a royalty
is paid shall be the Net Sales of the Combination Product *** *** *** *** .
9.5 OPTION TO PURCHASE EQUIPMENT. CCI is developing automation
instrumentation for internal purposes and is currently evaluating its options
for making such instrumentation available to its collaborators or for commercial
sale, either directly or through a Third Party. An automation summary has been
provided in Appendix E to serve as a guideline with respect to the potential
availability of such equipment and its potential pricing.
10. LOGISTICS OF PAYMENT; REPORTS; RECORDS; AUDITS
10.1 PAYMENT AND REPORTS. All royalty payments due to either Party
under this Agreement shall be paid in U.S. dollars within *** *** unless
otherwise specifically provided herein. Each payment of royalties shall be
accompanied by a report of Net Sales or CCI Net Sales, as appropriate, in
sufficient detail to permit confirmation of the
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
14
<PAGE> 19
accuracy of the royalty payment made.
10.2 METHOD OF PAYMENT. All payments, including royalties, to CCI under
this Agreement will be made according to the wire transfer instructions set
forth in Appendix F, which may be amended from time to time by CCI upon
submission of a new Appendix F to RBS. Any payments to RBS under this Agreement
shall be made by wire transfer as instructed by RBS prior to such payment being
made.
10.3 ROCHE EXCHANGE RATE. For countries other than the United States,
the conversion to U.S. dollars from any foreign currency shall be made as
follow:
(a) For Roche:
(i) when calculating the Adjusted Gross Sales, the
amount of such sales in foreign currencies shall be converted into Swiss Francs
as computed in the central Roche's Swiss Francs Sales Statistics for the
countries concerned, using the average monthly rate of exchange at the time for
such currencies as retrieved from the Reuters System;
(ii) when calculating the royalties on Net Sales,
such conversion shall be at the average rate of the Swiss Franc to the United
States dollars as retrieved from the Reuters System for the applicable calendar
quarter.
(b) for a sublicensee in a country:
when calculating the Adjusted Gross Sales, the amount
of such sales shall be reported by the sublicensee to Roche within thirty (30)
days from the end of a calendar quarter, after having converted each applicable
monthly sales in foreign currency into United States dollars using the average
monthly rate of exchange published in the Wall Street Journal (or some other
source agreed upon in writing by the parties for a particular country) of the
applicable calendar quarter.
10.4 CCI EXCHANGE RATE. Royalty payments and reports of CCI Net Sales
shall be calculated and reported for each calendar quarter. With respect to each
quarter, for countries other than the United States, whenever for the purpose of
calculating royalties conversion from any foreign currency to United States
dollars shall be required, such conversion shall be made as follows: when
calculating the Adjusted Gross Sales, the amount of such sales in foreign
currencies shall be converted into United States dollars for the countries
concerned, using the average monthly rate of exchange at the time for such
currencies as retrieved from the Reuters System.
10.5 FINANCIAL RECORDS AND AUDIT RIGHTS. During the term of this
Agreement and for a period of *** thereafter, any Party paying royalties (the
"Royalty Paying Party") shall keep complete and accurate records pertaining to
the sale or other disposition of Products in sufficient detail to permit the
other Party (the "Royalty Receiving Party") to confirm the accuracy of all
payments due hereunder. The Royalty Receiving Party shall have the right to
cause an independent, major (big six) certified public accountant firm
reasonably
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
15
<PAGE> 20
acceptable to Roche to audit such records to confirm the Net Sales or CCI Net
Sales, as appropriate, for the preceding year. Any information obtained during
such audit shall be treated as Confidential Information. Such audits may be
exercised during normal business hours once a year upon at least thirty (30)
working days' prior written notice to the Royalty Paying Party. The Royalty
Receiving Party shall bear the full cost of such audit unless such audit
discloses a variance of more than *** from the amount of the Net Sales or CCI
Net Sales, as appropriate, reported by the Royalty Paying Party for such audited
period. In such case, the Royalty Paying Party shall bear the full cost of such
audit.
10.6 TIME RECORDS. During the term of this Collaboration and for a
period of *** *** thereafter, CCI shall keep complete and accurate records
documenting the time spent by CCI employees in direct support of the
Collaboration. RBS shall have the right to audit such records to confirm CCI
time records and research costs for the preceding year upon *** *** prior
written notice. Such audits may be exercised during normal business hours once a
year upon notice to CCI.
10.7 TAXES. All turnover and other taxes levied on account of the
royalties and other payments accruing to each Party under this Agreement shall
be paid by the Party receiving such royalty or other payment for its own
account, including taxes levied thereon as income to the receiving Party. If
provision is made in law or regulation for withholding, such tax shall be
deducted from the royalty or other payment made by the Party making such payment
to the proper taxing authority and a receipt of payment of the tax secured and
promptly delivered to the Party entitled to the royalty. Each Party agrees to
assist the other Party in claiming exemption from such deductions or
withholdings under any double taxation or similar agreement or treaty from time
to time in force.
11. LICENSE GRANT
11.1 CCI GRANT TO RBS. Subject to the terms and conditions of this
Agreement, CCI hereby grants to RBS ***
***
***
***
***
***
***.
11.2 RBS DUE DILIGENCE FAILURE.
11.2.1 RBS GRANT BACK TO CCI. Upon termination of the relevant
Collaboration Compound Exclusivity Period and subject to the terms and
conditions of this Agreement, if Roche has failed to develop and commercialize
with Due Diligence a Development Candidate or a Product, as the case may be (a
"Returned Product"), RBS will grant to CCI ***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
16
<PAGE> 21
***.
11.2.2 ***
***
***
***
***
***
***.
11.2.3 ***
***
***
***
***
***
***.
12. TERM AND TERMINATION OF THE AGREEMENT
12.1 TERM. This Agreement shall terminate at ***
***.
12.2 TERMINATION. This Agreement may be terminated (a) by either Party
upon a material breach which remains uncured for *** following notice to the
breaching Party;
***
***
***
***
***.
12.3 RESULTS OF TERMINATION. All Research Support shall terminate upon
termination of this Agreement. Royalties and milestone payments shall survive
any such termination; provided however that if such termination is by RBS due to
a material breach by CCI of this Agreement, RBS will only owe CCI royalties and
milestones payments for any Product resulting from those Collaboration Compounds
generated for the Research Program prior to CCI's uncured material breach. In
addition, the provisions of Section 8.4 with respect to CCI's rights to work
with the Collaboration Targets and the Collaboration Compounds shall apply;
provided, however, that if the relevant Collaboration Target Exclusivity Period
and/or the Collaboration Compound Exclusivity Period has expired, CCI shall have
no such constraints on their actions.
13. CONFIDENTIAL INFORMATION
13.1 NONDISCLOSURE. During the term of the Collaboration and for a
period of ***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
17
<PAGE> 22
*** after termination thereof, each Party will maintain all Confidential
Information in trust and confidence and will not disclose any Confidential
Information to any Third Party or use any Confidential Information for any
purpose except (i) as expressly authorized by this Agreement, (ii) as required
by law or court order, (iii) to its consultants, sublicensees, subcontractors or
agents who need to know to accomplish the purposes of this Agreement. Each Party
may use such Confidential Information only to the extent required to accomplish
the purposes of this Agreement. Each Party will use at least the same standard
of care as it uses to protect proprietary or confidential information of its own
to ensure that its Affiliates, employees, agents, consultants, sublicensees, and
other representatives do not disclose or make any unauthorized use of the
Confidential Information. Each Party will promptly notify the other upon
discovery of any unauthorized use or disclosure of the Confidential Information.
13.2 EXCEPTIONS. Confidential Information shall not include any
information which the receiving Party can prove by competent evidence:
(a) is now, or hereafter becomes, through no act or
failure to act on the part of the receiving Party, generally known or available;
(b) is known by the receiving Party at the time of
receiving such information, as evidenced by its records;
(c) is hereafter furnished to the receiving Party by a
Third Party, as a matter of right and without restriction on disclosure;
(d) is independently developed by the receiving Party
without the aid, application or use of Confidential Information; or
(e) is the subject of a written permission to disclose
provided by the disclosing Party.
14. PUBLICATIONS
Neither Party shall publish any information with respect to
Collaboration Compounds without the prior written permission of the Publications
Committee (i) for the relevant Collaboration Target Exclusivity Period plus ***
for Collaboration Compounds with Target Activity and (ii) for the Collaboration
Target Exclusivity Period for Collaboration Compounds without Target Activity.
Should a Collaboration Compound be designated by a Party as a Development
Candidate, the other Party shall not publish any information with respect to
that Collaboration Compound or structurally similar Collaboration Compounds
without the prior written consent of the other Party.
15. PUBLIC STATEMENTS
Neither Party shall use the name of the other Party in any prospectus,
annual report, press release or other public statement without the prior written
approval of the other Party, which may not be unreasonably withheld or delayed;
provided, however, that both Parties
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
18
<PAGE> 23
shall endeavor in good faith to give the other Party a minimum of *** to review
such prospectus, annual report, press release, or other public statement; and
provided, further, that if a Party does not approve such public statement,
either Party may still use the name of the other Party in any prospectus, annual
report, press release or other public statement without the prior written
approval of the other Party, if such Party is advised by counsel that such
disclosure is required to comply with applicable law.
16. ***
***
***
***
***
***
***
***
***
***
***
***.
17. ASSIGNABILITY
This Agreement may *** *** ; provided, however, that either Party may
assign this Agreement, in whole or in part, to an Affiliate or to a successor of
a Party in connection with the merger, consolidation, or sale of all or
substantially of such Party's assets or that portion of its business pertaining
to the subject matter of this Agreement. *** *** .
18. DISPUTE RESOLUTION PROCEDURES
18.1 SENIOR EXECUTIVES DISCUSSIONS. If a decision is not reached by the
RMC, the dispute will be resolved as set forth in Section 7.1 above. If a
dispute arises between RBS and CCI with respect to matters other than the
management of a Research Program, either during or after the Research Period,
such dispute will be referred to the appropriate senior management in the area
of the dispute. If such senior management are unable to resolve such dispute,
such dispute will be referred to CCI's Chief Executive Officer and RBS's
President (or equivalent senior Roche officer). If such officers are unable to
reach an agreement within *** following the initiation of discussions between
CCI's Chief Executive Officer and RBS's President (or equivalent senior Roche
officer), such dispute shall be settled first by non-binding mediation and
thereafter by arbitration as described in Sections 18.2 and 18.3 below.
18.2 NON-BINDING MEDIATION. Any dispute which is not resolved by the
parties within the time period described in Section 18.1 shall be submitted to
an alternative dispute resolution process ("ADR"). Within *** after the
expiration of the *** period
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
19
<PAGE> 24
set forth in Section 18. 1, each Party shall select for itself a representative
with the authority to bind such Party and shall notify the other Party in
writing of the name and title of such representative. Within *** after the date
of delivery of such notice, the representatives shall schedule a date for
engaging in non-binding ADR with a neutral mediator or dispute resolution firm
mutually acceptable to both representatives.
Any such mediation shall be held in a mutually agreeable location; provided,
however that if the parties cannot so agree, such mediation shall occur in San
Diego, California if brought by RBS or in Palo Alto, California, if brought by
CCI. Thereafter, the representatives of the parties shall engage in good faith
in an ADR process under the auspices of such individual or firm. If the
representatives of the parties have not been able to resolve the dispute within
*** *** after the conclusion of the ADR process, or if the representatives of
the parties fail to schedule a date for engaging in non-binding ADR within the
*** period set forth above, the dispute shall be settled by binding arbitration
as set forth in Section 18.3 below. If the representatives of the parties
resolve the dispute within the *** period set forth above, then such resolution
shall be binding upon the parties. If either Party fails to abide by such
resolution, the other Party can immediately refer the matter to arbitration
under Section 18.3.
18.3 BINDING ARBITRATION. If the parties have not been able to resolve
the dispute as provided in Sections 18.1 and 18.2 above, the dispute shall be
finally settled by binding arbitration. Any arbitration hereunder shall be
conducted under rules of the American Arbitration Association. The arbitration
shall be conducted before three arbitrators chosen according to the following
procedure: each of the parties shall appoint one arbitrator and the two so
nominated shall choose the third. If the arbitrators chosen by the parties
cannot agree on the choice of the third arbitrator within a period of *** after
their appointment, then the third arbitrator shall be appointed by the Court of
Arbitration of the American Arbitration Association. Any such arbitration shall
be held in a mutually agreeable location; provided, however that if the parties
cannot so agree, such arbitration shall occur in San Diego, California if
brought by RBS or in Palo Alto, California, if brought by CCI. The arbitrators
shall have the authority to grant specific performance, and to allocate between
the parties the costs of arbitration in such equitable manner as they determine.
The arbitral award (i) shall be final and binding upon the parties; and (ii) may
be entered in any court of competent jurisdiction.
18.4 INJUNCTIVE RELIEF. Nothing contained in this Section or any other
provisions of this Agreement shall be construed to limit or preclude a Party
from bringing any action in any court of competent jurisdiction for injunctive
or other provisional relief to compel the other Party to comply with its
obligations hereunder before or during the pendency of mediation or arbitration
proceedings.
19. NOTICES
Any notice required or permitted to be given hereunder shall be deemed
sufficient if sent by facsimile letter or overnight courier, or if delivered by
hand to a Party at the respective addresses and facsimile numbers as set forth
below or at such other address and facsimile number as such Party may designate.
If sent by facsimile letter, notice shall be deemed given when the transmission
is completed if the sender has a confirmed transmission report. If a confirmed
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
20
<PAGE> 25
transmission report does not exist, then the notice will be deemed given when
the notice is actually received by the person to whom it is sent. If delivered
by overnight courier, notice shall be deemed given when it has been signed for.
If delivered by hand, notice shall be deemed given when received.
if to CCI, to:
CombiChem, Inc.
9050 Camino Santa Fe
San Diego, California 92121
Attention: President
Fax number: 619/530-9998
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101
Attention: Faye H. Russell, Esq.
Fax number: (619) 234-3848
if to RBS, to:
Roche Bioscience, a division of Syntex (U.S.A.) Inc.
3401 Hillview Avenue
Palo Alto, California 94304
Attn: President
Fax number: 415-852-2595
with a copy to
Roche Bioscience, a division of Syntex (U.S.A.) Inc.
3401 Hillview Avenue
Palo Alto, California 94304
Attn: Legal Department
Fax number: 415-852-1338
20. INDEPENDENT CONTRACTOR
Nothing in this Agreement is intended or shall be deemed to constitute
a partnership, agency, employer-employee or joint venture relationship between
the parties. No Party shall incur any debts or make any commitments for the
other, except to the extent, if at all, specifically provided for herein.
21
<PAGE> 26
21. SURVIVAL
The provisions of Sections 9, 10, 13, 14, 15, 16, 18, 19, and 22.3
shall survive termination of this Agreement.
22. ADDITIONAL TERMS
22.1 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Appendices) constitutes the entire understanding between the parties with
respect to the subject matter hereto and supersedes and replaces all previous
negotiations, understandings, representations, writings, and contract provisions
and rights relating hereof. The parties agree that all services provided
hereunder shall be subject to and governed by the terms and provisions set forth
herein, and none of the terms and conditions contained on any proposal, purchase
order, invoice, or other writing, shall have any effect or change the provisions
of this Agreement.
22.2 AMENDMENTS; NO WAIVER. No provision of this Agreement may be
amended, revoked or waived except by a writing signed and delivered by an
authorized officer of each Party. Any waiver on the part of either Party of any
breach or any right or interest hereunder shall not imply the waiver of any
subsequent breach or waiver of any other right or interest.
22.3 VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
22.4 HEADINGS. The descriptive headings are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning of or
interpretation of this Agreement.
22.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the Effective Date.
COMBICHEM, INC. SYNTEX (U.S.A.) INC.
By: /s/ Vicente Anido /s/ James N. Woody
------------------------------- ------------------------------
Vicente Anido, Ph.D. James N. Woody, M.D., Ph.D.
President and Chief Executive Officer President
<TABLE>
<S> <C>
Appendix A - Description of Research Programs
Appendix B - ***
Appendix C - Collaboration Financial Summary
Appendix D - ***
Appendix E - CombiSyn Automation Instruments
Appendix F - Wire Transfer Instructions
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
23
<PAGE> 28
***
***
***
***
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Appendix A Page A-1
<PAGE> 29
***
***
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Appendix A Page A-2
<PAGE> 30
***
***
***
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Appendix A Page A-3
<PAGE> 31
***
***
***
***
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
Appendix A Page A-4
<PAGE> 32
APPENDIX B
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 33
APPENDIX C
COLLABORATION FINANCIAL SUMMARY
($ in millions)
<TABLE>
<CAPTION>
*** Lead Lead Lead
Optimization Evolution Generation(1)
------------ --------- -------------
<S> <C> <C> <C>
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 34
APPENDIX D
MILESTONES FOR RELATED PRODUCTS SUMMARY
($ in millions)
<TABLE>
<CAPTION>
Lead
*** Optimization
------------
<S> <C> <C> <C>
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
*** *** *** ***
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 35
APPENDIX E
COMBISYN AUTOMATION
SUMMARY
1. CombiSyn SP40 Synthesizers
SP40 synthesizers are currently project to be priced at *** per unit,
if made available to collaborators or for commercial sale. This
instrument is in its beta stage and, if commercialized, would
potentially become available in 1998 (subject to the extent of
modifications resulting from beta test).
2. CombiSyn PWS-20
PWS-20 purification/work-up stations are currently expected to be
priced at *** per unit, if made available to collaborators or for
commercial sale. This unit is in the development stage and, if
commercialized, would potentially become available in 1998 (subject to
the extent of modifications resulting from beta test).
3. PE-SCIEX MS-LC
PE-SCIEX API-100LC Mass Spectrometer systems may be purchased from PE-
SCIEX directly. This unit is currently available.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 36
APPENDIX F
COMBICHEM, INC.
INCOMING WIRE TRANSFER INSTRUCTIONS
(into *** )
Transfer Funds to:
***
New York, NY
Routing Transit/ABA Number:
***
For Account of:
***
Account Number:
***
For Further Credit to:
***
CombiChem, Inc.
Funds must be received by NFSC by 11:00 a.m. PST for same day credit.
Please call to advise regarding funds transferred:
At CombiChem, Inc.:
***
(619) 530-0484, ext. 113 - Telephone
(619) 530-9998 - Fax
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 1
EXHIBIT 10.21
RESEARCH AND TECHNOLOGY DEVELOPMENT
AGREEMENT
BETWEEN
COMBICHEM, INC.
AND
SUMITOMO PHARMACEUTICALS CO., LTD.
AUGUST 18, 1997
<PAGE> 2
RESEARCH AND TECHNOLOGY DEVELOPMENT
AGREEMENT
THIS RESEARCH AND TECHNOLOGY DEVELOPMENT AGREEMENT (the "Agreement") is
entered into on August 18, 1997 (the "Effective Date"), by and between
COMBICHEM, INC., a corporation having its principal offices at 9050 Camino Santa
Fe, San Diego, California ("CombiChem"), and SUMITOMO PHARMACEUTICALS CO., LTD.,
a corporation having its principal offices located at 2-8, Doshomachi 2-chome,
Chuo-Ku, Osaka, 541, Japan ("Sumitomo").
WHEREAS, CombiChem has developed and owns certain drug discovery
technology and intellectual property rights, including chemical library design
software, multi-parallel synthesis and purification methods, chemical libraries
suitable for high throughput biological screening assays and medicinal chemistry
(collectively, "CombiChem Technology");
WHEREAS, Sumitomo desires to utilize CombiChem Technology for its drug
discovery activities under Sumitomo Know-how concerning ***
("Objective");
WHEREAS, the parties wish to collaborate on the Objective in a Research
Program against a Collaboration Target ("Collaboration");
NOW, THEREFORE, the Parties agree as follows:
1. DEFINITIONS
1.1 "Active Compound(s)" means a compound ( or compounds ) which
(a)(i) is selected by either Party under the Research Program from
Collaboration Compounds, or
(ii) is derived from a Collaboration Compound *** *** ; and
(b) shows in vitro activity of at least ***
*** .
1.2 "Affiliate" of a Party means any corporation or other business
entity controlled by, controlling or under common control with, such Party. For
this purpose "control" shall mean direct or indirect beneficial ownership of
more than fifty percent (50%) of the voting securities or income interest in
such corporation or other business, or if not meeting the preceding
requirements, any company owned or controlled by or owning or controlling such
Party at the maximum control or ownership right permitted in the country where
such company exists.
1.3 "Collaboration" has the meaning set forth in the preamble.
1.4 "Collaboration Compound(s)" means a compound (or compounds) which
(a) is synthesized following the Effective Date for screening against the
Collaboration Target, under
*** Portions of this page have been omitted pursuant to a request for
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1
<PAGE> 3
the Research Program, or (b) is a pre-existing CombiChem compound which
CombiChem desires to designate as a Collaboration Compound.
1.5 "Collaboration Target(s)" means ***
*** .
1.6 "CombiChem Technology" has the meaning set forth in the preamble.
1.7 "Confidential Information" includes, but is not limited to,
(a) all information and materials received by either Party from the
other Party pursuant to this Agreement;
(b) all information and materials developed in the course of the
Collaboration; and
(c) the material financial terms of this Agreement.
1.8 "Development Compound(s)" means a compound ( or compounds ) which
(a)(i) is a Lead Compound or (ii) is derived from a Lead Compound and
*** *** ; and
(b) are determined by Sumitomo to be appropriate for preclinical
studies for the purpose of IND filing by Sumitomo.
1.9 "Exclusivity Period" means the Research Period *** .
1.10 "Field" means all therapeutic and diagnostic indications of human
disease for the Collaboration Target.
1.11 "First Commercial Sale" of a Product shall mean the first sale for
use or consumption of such Product in a country after required marketing and
pricing approval has been granted by the governing health regulatory authority
of such country. Sale to an Affiliate or sublicensee shall not constitute a
First Commercial Sale unless the Affiliate or sublicensee is the end user of the
Product.
1.12 "Inactive Compound(s)" means a Collaboration Compound(s) ***
*** it does not have the in vitro activity required for an Active
Compound.
1.13 "Lead Compound(s)" means a compound (or compounds ) which
(a)(i) is selected from an Active Compound(s) by either Party under the
Research Program, or (ii) is derived from Active Compound(s);
(b) *** ; and
(c) shows in vitro activity with *** *** .
1.14 "Net Sales" means the gross sales invoiced by Sumitomo or its
Affiliates or licensees for Products to non-Affiliated third parties less actual
deductions of returns (including withdrawals and recalls), rebates (price
reductions, including Medicaid and similar types of rebates e.g. chargebacks),
volume (quantity) discounts, discounts granted at the time of invoicing, the
cost of transport, insurance, delivery, sales taxes and other taxes (other than
income taxes) directly linked to and included in the gross sales amount as
computed on a
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<PAGE> 4
product-by-product basis for the countries concerned, whereby the amount of such
sales in foreign currencies is converted into United States dollars at the
exchange rate of the last business day for each calendar quarter as reported by
Sumitomo Bank (Tokyo).
1.15 "Other *** " means *** *** .
1.16 "Patent" means, (a) valid and enforceable Letters Patent, including
any extension (including Supplemental Protection Certificate), registration,
confirmation, reissue, continuation, divisionals, continuation-in-part,
reexamination or renewal thereof, or (b) pending applications for any of the
foregoing.
1.17 "Party" means CombiChem or Sumitomo, as the case may be; and
including their respective Affiliates and their permitted successors and
assigns.
1.18 "Product(s)" means any product containing a Development Compound
with such compound as the active ingredient and which is granted regulatory
approval by the governing health regulatory authority of the applicable country
for marketing in the Field.
1.19 "Research Management Committee" or "RMC" has the meaning set forth
in Article 5 below.
1.20 "Research Period" means the initial *** term of the Collaboration,
which can be extended in accordance with Section 6.1 below.
1.21 "Research Program" means the research to be conducted as part of
the Collaboration under the mutually-agreed research plan, and shall include,
without limitation, the activities and items set forth in Sections 2.1 and 2.2
of this Agreement.
1.22 "Royalty Term" means, in the case of any Product, in any country,
the period of time commencing on the First Commercial Sale and ending upon the
later of (a) ***
*** from the date of First Commercial Sale in such country; or (b) the
expiration of the last-to-expire Patent resulting from the Research Program
filed in the Field during the Exclusivity Period with claims covering that
Product in the relevant country.
1.23 "Territory" means *** .
2. RESEARCH COLLABORATION
2.1 CombiChem Responsibilities. CombiChem shall conduct the following
activities under the Research Program in accordance with the terms of this
Agreement and as more fully described in the Research Plan:
(a) During the Research Period, CombiChem shall (i) review data and
information regarding the Collaboration Targets provided by
Sumitomo ; (ii) based on those data and information and using the
CombiChem Technology , design compound libraries; and (iii)
synthesize compounds as provided in Section 4.4 below.
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(b) During the Research Period, CombiChem shall keep Sumitomo fully
informed of its activities performed in connection with the
Collaboration, including, without limitation, by providing
Sumitomo with data and information regarding Collaboration
Compounds prior to the meetings of the Research Management
Committee.
(c) During the Research Period, CombiChem shall provide space and
resources to accommodate the Sumitomo scientists described in
Section 2.2 below.
(d) During the Research Period , CombiChem shall provide a minimum
of *** .
(e) During the Research Period and while *** *** ,
CombiChem shall provide Sumitomo with reasonable technical
support to facilitate Sumitomo's establishment of an ***
*** *** *** *** *** .
2.2 Sumitomo Responsibilities. Sumitomo shall provide CombiChem, with
the following resources under the Research Program as more fully described in
the Research Plan:
(a) Sumitomo shall provide CombiChem with support and assistance
useful or necessary for the conduct of the Research Program,
including providing data input from in-house lead series and
screening hits, chemical intermediates, information concerning
assay methods and screening data.
(b) During the Research Period, Sumitomo shall provide CombiChem with
data and information regarding Collaboration Compounds and the
Collaboration Target assays developed by Sumitomo under the
Research Program prior to the meetings of the Research Management
Committee.
(c) During the Research Period and in connection with CombiChem
providing the services in Section 2.1(e) above , Sumitomo may
send ***
***
***
***
*** .
(d) During the Exclusivity Period, Sumitomo shall screen
Collaboration Compounds for in vitro and, where appropriate, in
vivo activity against the Collaboration Target, devoting the same
degree of attention, resources and diligence to these screening
activities as it devotes to other compounds in its own discovery
activities.
2.3 Research Plan. The Parties hereby agree that the Research Program
shall be carried out in accordance with the Research Plan which is attached
hereto as Exhibit A. The Research Management Committee shall review the Research
Plan on an ongoing basis and may make changes to the Research Plan so long as
such changes are mutually agreed to by CombiChem and Sumitomo.
2.4 Sumitomo Due Diligence. Sumitomo shall screen Lead Compounds and
endeavor to determine Development Compounds. Sumitomo shall devote the same
degree of attention, resources and diligence to its obligations above and the
development of Development Compounds as it devotes to other compounds of its own
development ("Due
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<PAGE> 6
Diligence"). Timelines associated with Due Diligence for the first IND filing
are outlined in Exhibit A which timelines may be extended upon the mutual
agreement of Sumitomo and CombiChem.
2.5 Annual Reports. Following the first IND filing through First
Commercial Sale, Sumitomo shall provide CombiChem with an annual report
summarizing Sumitomo's activities in developing Development Compounds.
2.6 Third Party Licenses. Each party shall be solely responsible for any
third party license fees required to perform its obligations under this
Agreement.
3. EXCLUSIVITY
3.1 Collaboration Target Exclusivity. *** *** .
3.2 *** . An *** shall be available to both Parties for
direct or indirect use against *** following the *** .
3.3 *** . An *** shall be available to both Parties for direct or
indirect use against targets other than a Collaboration Target or *** following
the *** .
3.4 Inactive Compounds. An Inactive Compound shall be available to both
Parties for any purpose following the designation of a Collaboration Compound as
an Inactive Compound.
4. COLLABORATION COMPOUNDS
4.1 Pre-Existing Compounds. Sumitomo shall have no rights to any
pre-existing CombiChem compound unless and until such compound is designated as
a Collaboration Compound by CombiChem. CombiChem shall have no rights to any
pre-existing Sumitomo compound which is not utilized in the Research Program.
4.2 Intellectual Property Rights. Subject to Article 8, Sumitomo shall
retain all exclusive rights to all intellectual property relating solely to the
Active Compounds and resulting from the Research Program during the Exclusivity
Period and thereafter so long as Sumitomo continues to show Due Diligence. With
respect to Active Compounds , Lead Compounds , and Development Compounds ,
Sumitomo shall be responsible for filing, maintaining and prosecuting all
Patents at its sole expense . Sumitomo shall have ownership of such Patents.
Prior to the filing of any such related Patent applications , CombiChem shall
assign all intellectual property rights it may have in the Active Compound which
is necessary for development and commercialization by Sumitomo or its designee.
If Sumitomo fails to so file, maintain or prosecute such Patent or related
Patent applications, CombiChem shall have the right to request Sumitomo to do
so. If Sumitomo elects not to file, maintain or prosecute such Patent or related
Patent applications , CombiChem shall have the right to take over such filing,
maintenance or prosecution of such Patent or related Patent applications, at its
sole
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<PAGE> 7
expense, and Sumitomo shall assign all intellectual property rights it may have
in the Compound which is necessary for development and commercialization by
CombiChem or its designee.
4.3 Structural Information. Neither Party shall disclose the structure
of any Active Compound to any Third Party without the other Party's written
permission, unless required to do so by law.
4.4 Supply of Collaboration Compounds. Aliquots of at least *** of any
Collaboration Compound that has been synthesized will be prepared and given to
Sumitomo. Aliquots of at least *** of *** Lead Compounds will be prepared and
given to Sumitomo upon their reasonable request. In addition, aliquots of at
least *** of *** Lead Compounds will be prepared and given to Sumitomo upon
their reasonable request. For additional requirements of samples, CombiChem
shall provide *** .
5. RESEARCH MANAGEMENT & PLAN
The design, review and conduct of the Research Program will be
coordinated by the Research Management Committee, which will meet regularly on a
mutually-agreeable schedule. The Research Management Committee may establish and
amend or revise the research plan as necessary to reflect the scientific
progress and work performed under the Research Program, such amendments to be
mutually agreed to by Sumitomo and CombiChem. The Research Management Committee
will consist of an equal number of members from Sumitomo and CombiChem and will
include appropriate representatives from Sumitomo and CombiChem as mutually
agreed. The co-chairs of the Research Management Committee will initially be the
Vice President, Chemistry of CombiChem and a Research Manager of Sumitomo and
subsequently may change as mutually-agreed upon by the Parties. Decisions of the
Research Management Committee shall be by consensus. At the end of Research
Period, the Research Management Committee shall define Lead Compounds.
6. RESEARCH PERIOD, EXTENSION AND TERMINATION OF
RESEARCH PROGRAM
6.1 Research Period : Option to extend the Research Period. The initial
term of the Collaboration shall be the Research Period. Sumitomo shall have the
right to extend the Research Period for up *** periods upon mutual agreement .
To extend the Research Period , Sumitomo must notify CombiChem no later than ***
prior to the then-current expiration date and the Parties shall negotiate in
good faith the terms and conditions of any such extension.
6.2 Termination of Research Program. The Research Program may be
terminated by a Party *** days following the uncured material breach of
obligations under the Research Program of the other Party.
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<PAGE> 8
7. PAYMENT OBLIGATIONS
7.1 Program Funding. Sumitomo shall support CombiChem's efforts in
conducting the Research Program by making payments in the following amounts at
the following times:
<TABLE>
<S> <C>
*** ***
*** ***
*** ***
</TABLE>
7.2 Milestone Payments. Within thirty (30) days of the occurrence of a
development milestone shown in Exhibit B , whether such milestone is triggered
by the activities of Sumitomo or those of its sublicensee , Sumitomo shall pay
CombiChem the related milestone payment in United States dollars. The schedule
for such payments is set forth in Exhibit B of this Agreement.
7.3 Royalties. During the Royalty Term, Sumitomo will pay CombiChem a
running royalty of *** of Net Sales in all countries in the Territory
*** .
***
***
With respect to sales in *** , during the Royalty Term , Sumitomo will
pay CombiChem a running royalty of *** of Net Sales. All Royalty
payments due to CombiChem under this Agreement shall be paid in United States
dollars within *** of the end of each calendar quarter, in case Products
are sold by Sumitomo *** *** *** . Each payment of
royalties shall be accompanied by a report of Net Sales of Products in
sufficient detail to permit confirmation of the accuracy of the royalty payment
made. 7.4 Manner and Place of Payment. Royalty payments and reports for Net
Sales of Products shall be calculated in local currencies and reported for each
calendar quarter. All payments owed under this Agreement shall be made by wire
transfer to the bank account to be designated by CombiChem separately with at
least fifteen (15) business days prior written notice to Sumitomo.
7.5 Records and Audit. During the term of this Agreement and for a
period of *** *** , Sumitomo shall keep complete and accurate
records pertaining to the sale or other disposition of Products in sufficient
detail to permit CombiChem to confirm the
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7
<PAGE> 9
accuracy of all payments due hereunder. CombiChem shall have the right to cause
an independent certified public accounting firm reasonably acceptable to
Sumitomo to audit such records to confirm Sumitomo's Net Sales for the preceding
year, Any information obtained during such audit shall be treated as
Confidential Information. Such audits may be exercised during normal business
hours of Sumitomo no more than once each year. CombiChem shall bear the full
cost of such audit unless such audit discloses a variance of more than *** from
the amount of the Net Sales reported by Sumitomo for such audited period. In
such case, Sumitomo shall bear the full cost of such audit.
7.6 Taxes. All income and other taxes levied on account of the royalties
and other payments accruing to CombiChem under this Agreement shall be paid by
CombiChem, including taxes levied thereon as income to CombiChem. If provision
is made in law or regulation for withholding, such tax shall be deducted from
the royalty or other payment made by Sumitomo to the proper taxing authority and
a receipt of payment of the tax secured and promptly delivered to CombiChem.
Each Party agrees to assist the other Party in claiming exemption from such
deductions or withholdings under any double taxation or similar agreement or
treaty from time to time in force.
8. LICENSE GRANT ***
8.1 CombiChem License Grant to Sumitomo. Subject to the terms and
conditions of this Agreement, CombiChem hereby grants to Sumitomo *** ,
***
***
*** .
8.2 *** . ***
***
***
***
***
***
*** .
8.3 Sumitomo License Grant to CombiChem. Subject to the terms and
conditions of this Agreement and following the failure of Sumitomo to develop
and commercialize with Due Diligence a Lead Compound, a Development Compound or
Product, as the case may be, ( "Returned Compound"), Sumitomo shall grant to
CombiChem *** *** under those Sumitomo Patents and know-how
which are resulting from the Research Program and related exclusively to the
Returned Compound *** *** .
8.4 Rights Outside the Field. Each of Sumitomo and CombiChem shall have
rights to *** outside the Field.
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<PAGE> 10
9. TERM AND TERMINATION OF THE AGREEMENT
9.1 Term. The term of this Agreement shall commence upon the Effective
Date of this Agreement, and shall expire on the expiration of the last royalty
obligation under this Agreement, except as provided hereunder.
9.2 Termination by Sumitomo or CombiChem. If either Party materially
breaches this Agreement and fails to remedy that breach within *** of receiving
written notice thereof from the other Party, or enters into any arrangement of
composition with its creditors or goes into liquidation, insolvency, bankruptcy,
receivership or reorganization proceedings, whether voluntarily or compulsorily
which is not dismissed within *** , then the other Party may at any time, by
notice in writing or by telefax, terminate this Agreement.
9.3 *** . ***
***
***
*** .
9.4 After Termination. Any termination of this Agreement or the Research
Program shall be without prejudice to the accrued rights of either Party prior
to the termination. In case of termination of this Agreement or the Research
Program by CombiChem according to the Article 9.2 above, all royalty and
milestone obligations for any Collaboration Compound shall survive any such
termination.
10. CONFIDENTIAL INFORMATION
10.1 Nondisclosure. During the term of the Collaboration and for a
period of *** *** after termination thereof, each Party will
maintain all Confidential Information in trust and confidence and will not
disclose any Confidential Information to any third party or use any Confidential
Information for any purpose except (i) as expressly authorized by this
Agreement, (ii) as required by law or court order, (iii) to its consultants,
subcontractors or agents who need to know to accomplish the purposes of this
Agreement. Each Party may use such Confidential Information only to the extent
required to accomplish the purposes of this Agreement. Each Party will use at
least the same standard of care as it uses to protect proprietary or
confidential information of its own to ensure that its Affiliates, employees,
agents, consultants and other representatives do not disclose or make any
unauthorized use of the Confidential Information. Each Party will promptly
notify the other upon discovery of any unauthorized use or disclosure of the
Confidential Information.
10.2 Exceptions. Confidential Information shall not include any
information which the receiving Party can prove by competent evidence: (a) is
now, or hereafter becomes, through no act or failure to act on the part of the
receiving Party, generally known or available; (b) is known by the receiving
Party at the time of receiving such information, as evidenced by its records;
(c) is hereafter disclosed to the receiving Party by a Third Party, as a matter
of right and without restriction on disclosure; (d) is independently developed
by the
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<PAGE> 11
receiving Party without the aid, application or use of Confidential Information;
or (e) is the subject of a written permission to disclose provided by the
disclosing Party.
11 PUBLICATIONS AND PUBLIC STATEMENTS
11.1 Publications. Neither Party shall publish any information with
respect to Collaboration Compounds or Development Compound without the prior
written permission of the other party during the Exclusivity Period. Such
permission shall be approved or disapproved within *** of written request for
permission. Such permission shall not be unreasonably withheld.
11.2 Public Statements. Neither Party shall use the name of the other
Party in any public statement , prospectus , annual report or press release
without the prior written approval of the other Party , which may not be
unreasonably withheld or delayed ; provided, however, that both Parties shall
endeavor in good faith to give the other Party a minimum of
*** to review such public statement , prospectus , annual report or press
release ; and provided , further , that if a Party does not approve such public
statement , either Party may still use the name of the other Party in any public
statement , prospectus , annual report or press release without the prior
written approval of the other Party , if such Party is advised by counsel that
such disclosure is required to comply with applicable law.
12. ***
12.1 ***
***
***
***
***
***
***
***
***
***
***
12.2 *** ***
***
***
***
***
***
(i) ***
***
(ii) ***
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<PAGE> 12
***
(iii) ***
***
12.3 *** ***
***
***
***
***
13. ASSIGNABILITY
This Agreement may not be assigned by either Party without the prior
written consent of the other Party; provided, however, that either Party may
assign this Agreement, in whole or in part, to an Affiliate or to a successor of
a Party in connection with the merger, consolidation or sale of all or
substantially all of such Party's assets or that portion of its business
pertaining to the subject matter of this Agreement.
14. DISPUTE RESOLUTION PROCEDURES
14.1 Arbitration. All disputes arising in connection with this Agreement
shall be finally settled by arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce in force at the time of
such dispute. The arbitration shall take place in the United States by three
arbitrators appointed in accordance with such Rules.
14.2 Injunctive Relief. Nothing contained in this Section or any other
provisions of this Agreement shall be construed to limit or preclude a Party
from bringing any action in any court of competent jurisdiction for injunctive
or other provisional relief to compel the other Party to comply with its
obligations hereunder before or during the pendency of arbitration proceedings.
15. NOTICES
Any notice required or permitted to be given hereunder shall be deemed
sufficient if sent by facsimile letter or overnight courier , or delivered by
hand to Sumitomo or CombiChem at the respective addresses and facsimile numbers
as set forth below or at such other address and facsimile number as either Party
hereto may designate.
if to CombiChem, to:CombiChem, Inc.
9050 Camino Santa Fe San Diego, California 92121
Attention: President
Fax number: (619) 530-9998
with a copy to: Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101
Attention: Faye H. Russell, Esq.
Fax number: (619) 234-3848
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<PAGE> 13
if to Sumitomo, to: Research Coordination & Planning Department
1-98, Kasugadenaka 3 -choume , Konohana-ku
Osaka 554 Japan
Sumitomo Pharmaceuticals Co., Ltd.
Attn.: Dr. Kei-ichi Ono
Fax number: 06-466-1890
16. SURVIVAL
The provisions of Sections 8.4 and 17.6, and Article 12 shall survive
termination of this Agreement in addition to those provisions which by their
terms survive.
17. ADDITIONAL TERMS
17.1 Entire Agreement. This Agreement and that certain Confidentiality
Agreement between CombiChem and Sumitomo dated February 5, 1997 constitutes the
entire understanding between the Parties with respect to the subject matter
hereto and supersedes and replaces all previous negotiations, understandings,
representations, writings and contract provisions and rights relating hereof.
The Parties agree that all services provided hereunder shall be subject to and
governed by the terms and provisions set forth herein, and none of the terms and
conditions contained on any proposal, purchase order, invoice or other writing
shall have any effect or change the provisions of this Agreement.
17.2 Amendment; No Waiver. No provision of this Agreement may be
amended, revoked or waived except by a writing signed and delivered by an
authorized officer of each Party. Any waiver on the part of either Party of any
breach or any right or interest hereunder shall not imply the waiver of any
subsequent breach or waiver of any other right or interest.
17.3 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and effect
.
17.4 Headings. The descriptive headings are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning of or
interpretation of this Agreement.
17.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
17.6 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California, without
reference to conflicts of laws principles.
12
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the Effective Date.
COMBICHEM, INC. SUMITOMO PHARMACEUTICALS CO., LTD.
By: /s/ Vicente Anido, Jr. By: /s/ M. Takeuchi
------------------------------- -------------------------------
Its: President and CEO Its: M. Takeuchi
------------------------------- -------------------------------
President
-------------------------------
13
<PAGE> 15
EXHIBIT A
I. Research Plan
***
***
***
***
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<PAGE> 16
***
***
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 17
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 18
II. CRITERIA FOR ACTIVE COMPOUNDS, LEAD COMPOUNDS AND DEVELOPMENT COMPOUNDS
***
***
III. DUE DILIGENCE
Sumitomo will find the IND after a selection of a Development compound
within *** which may be extended upon Mutual Agreement of Sumitomo and
CombiChem.
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<PAGE> 19
EXHIBIT B
FINANCIAL SUMMARY
($ IN USD MILLIONS)
***
***
***
***
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Confidential Treatment and filed separately with the Commission.
<PAGE> 20
EXHIBIT C
***
***
***
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 1
EXHIBIT 10.24
FULL RECOURSE SECURED PROMISSORY NOTE
$150,000.00 September 5, 1995
La Jolla, California
FOR VALUE RECEIVED, the undersigned ("Maker"), promises to pay to
COMBICHEM, INC., a California corporation ("Holder"), or order, at 9050 Camino
Santa Fe, San Diego, California 92121, or at such other place as Holder may from
time to time designate, the principal sum of One Hundred Fifty Thousand Dollars
($150,000.00)(the "Loan"), in the following amounts and on the terms set forth
below.
1. Interest. Unpaid principal of this Promissory Note shall accrue
interest at a rate equal to the applicable minimum Federal rate on the date of
the Note per annum, compounded annually, and shall be computed on the basis of a
365 day year for the actual number of days elapsed.
2. Payment.
2.1 Payment of Principal and Interest. The Loan and all accrued
interest owing under this Promissory Note shall become due and payable in full
on the Maturity Date set forth in Section 3 below; provided, however, that if
any payment of principal or interest on this Promissory Note shall become due on
a Saturday, Sunday or a public holiday under the laws of the State of
California, such payment shall be due on the next succeeding business day.
Except as otherwise provided herein or by applicable law, all payments shall be
applied first to any unpaid enforcement or collection costs, then to accrued but
unpaid interest, and the remainder shall be applied to principal. This
Promissory Note may be prepaid, in whole or in part, at any time without premium
or penalty. Partial prepayments shall not postpone or delay the date of any
subsequent payment.
2.2 Form of Payment. All amounts payable under this Promissory
Note are payable in lawful money of the United States. Any payment shall be
deemed made upon receipt by Payee. Checks will constitute payment when
collected. All payments of principal and interest made hereunder shall be
evidenced by the internal records of Holder, which shall be prima facie evidence
of such matters.
3. Maturity Date.
The outstanding principal balance of this Promissory Note and all unpaid
interest accrued hereunder shall be due and payable no later than the "Maturity
Date." The Maturity Date shall be the earlier to occur of: (a) September 5,
2000; (b) the expiration of the 30-day period following the date the Maker
ceases for any reason to remain in the employment on a regular and full-time
basis by CombiChem, Inc., a California corporation ("Corporation"); (c) the
expiration of the 180-day period following the date on which Corporation
completes a successful public offering of its shares of its common stock; or (d)
the date on which Corporation completes the consummation of any corporate
transaction in which (i) more than fifty percent (50%) of the outstanding shares
of the common stock of Holder are acquired by a single purchaser or by a group
of purchasers acting in concert; (ii) all or substantially all of the assets of
Holder are acquired by a single purchaser or a group of purchasers acting in
concert; (e) that date on which Corporation merges with or into another
organization; or (f) the expiration of the 10-day period following the date on
which Maker sells, transfers, or suffers or permits the sale or transfer of
Maker's real property located at 3 Los Altos Road, Orinda, California (the "Real
Property"). Maker hereby covenants that Maker shall provide Holder with written
notice of any sale or transfer of the Real Property at least ten (10) days prior
to the date Maker transfers title to the Real Property. Upon payment in full of
all principal and accrued interest payable hereunder, this Promissory Note shall
be surrendered to Maker for cancellation.
4. Security. The performance of the Maker's obligations under this
Promissory Note are secured by the pledge of shares of the common stock of
Holder held by Maker as of the date of this
<PAGE> 2
Promissory Note (the "Pledged Shares") pursuant to the terms of that certain
Stock Pledge Agreement ("Pledge Agreement") dated the same date as this
Promissory Note between Maker and Holder, and any and all shares of Holder's
capital stock hereafter acquired by Maker pursuant to any option agreements,
stock pledge agreements, warrants or other instruments regarding the shares of
capital stock of Holder, entered into by and between the Maker and the Holder at
any time before the repayment of the Loan. This Promissory Note is secured as
set forth in the Pledge Agreement.
5. Late Payment.
Maker agrees that if for any reason it fails to make any of the payments
required herein, including the amount due at the Maturity Date, within five (5)
days after the due date for the payment, Holder shall be entitled to damages for
the detriment caused by such failure. Maker recognizes that as a result of any
payment required herein becoming overdue, Holder will incur additional expenses
in servicing the Loan not otherwise contemplated hereunder, including, but not
limited to, processing and accounting charges, the loss to Holder of the use of
money due and frustration to Holder in meeting its other financial commitments.
Maker further recognizes that the exact amount of these additional expenses will
be extremely difficult and impractical to ascertain and agrees to pay an amount
equal to five percent (5%) of such overdue amounts ("Late Charge"). In order to
compensate Holder for its additional expenses resulting from Maker's continued
failure to repay overdue amounts, one (1) additional Late Charge shall be
incurred by Maker every three (3) months, if the overdue amount remains unpaid
to Holder. Maker agrees to pay Holder such additional Late Charge on the
aggregate of all unpaid and overdue amounts, including all previously incurred
Late Charges. Acceptance of any Late Charge by Holder shall in no event
constitute a waiver of Maker's default with respect to such overdue amount nor
prevent Holder from exercising any other rights and remedies granted under this
Promissory Note or the Pledge Agreement.
6. Default.
6.1 Events of Default. At the election of the Holder, in its sole
discretion, the entire unpaid principal balance of this Note, together with all
accrued and unpaid interest, shall become immediately due and payable prior to
the specified due date of this Note upon the occurrence of one or more of the
following events: (a) Maker dies; or (b) Maker shall default in the performance
of any of its obligations hereunder, including, without limitation, payment of
the balance due at the Maturity Date, when due; or (c) a default occurs under
the Pledge Agreement or under any obligation secured thereby; (d) or any
transfer (except as contemplated by the Pledge Agreement), conveyance,
hypothecation, assignment or encumbrance, whether voluntarily or involuntarily
or by operation of law or otherwise, of any beneficial interest in the Pledged
Shares or any portion thereof, other than as expressly permitted by Holder in
writing; or (e) the making by the Maker of any assignment for the benefit of
creditors or the voluntary appointment (at the request or with the consent of
the Maker) of a receiver, custodian, liquidator or trustee in bankruptcy of any
of the Maker's property, or the filing by the Maker of a petition in bankruptcy
or other similar proceeding under any law for relief of debtors; or (f) the
filing by or against the Maker of any petition in bankruptcy or any petition for
relief under the provisions of the Federal bankruptcy act or any other state or
Federal law for the relief of debtors and the continuation of such petition
without dismissal for a period of sixty (60) days or more, the appointment of a
receiver or trustee to take possession of any property or assets of the Maker or
the attachment of or execution against any property or assets of the Maker (each
of the foregoing is sometimes referred to hereinafter as an "Event of Default").
Upon any of the foregoing Events of Default, the Holder of this Promissory Note,
at its election, may declare immediately due and payable the entire balance of
principal and interest thereon together with all cost of collection, including,
but not limited to, reasonable attorneys' fees and costs and all expenses
incurred in connection with the protection of or realization on any security for
this Promissory Note. At the option of Holder and upon five (5) days written
notice of or demand and in the event of any default or acceleration under this
Promissory Note, interest thereafter on the unpaid principal balance, accrued
Late Charges and additional costs incurred shall be payable at the lesser of ten
percent (10%) per annum, compounded quarterly, or the maximum rate permitted by
law. The Maker further understands that this is a full recourse promissory note.
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<PAGE> 3
6.2 No Waiver. In the event of any default or acceleration under
this Promissory Note, Maker agrees that the acceptance by Holder of any
performance which does not strictly comply with the terms of this Promissory
Note shall not be deemed to be a waiver of Holder's rights. No previous waiver
and no failure or delay by Holder in acting with respect to the terms of this
Promissory Note or the Pledge Agreement shall constitute a waiver of any breach,
default or failure of condition under this Promissory Note or the Pledge
Agreement or the obligations secured thereby. A waiver of any term of this
Promissory Note or the Pledge Agreement or of any of the obligations secured
thereby must be made in writing and shall be limited to the express written
terms of such waiver.
7. Employment. For purposes of applying the provisions of this Note
under Section 6.1(b) above, the Maker shall be considered to remain in the
Corporation's employment for so long as the Maker renders services as a director
or full-time employee of the Corporation, any successor entity or one or more of
the Corporation's fifty percent (50%)-or-more owned (directly or indirectly)
subsidiaries. HOWEVER, NOTHING IN THIS PROMISSORY NOTE SHALL CONFER UPON THE
MAKER ANY RIGHT TO CONTINUE IN THE EMPLOYMENT OF THE CORPORATION (OR ITS
SUCCESSORS OR SUBSIDIARIES) FOR ANY PERIOD OF SPECIFIC DURATION OR INTERFERE
WITH OR OTHERWISE RESTRICT IN ANY WAY THE RIGHTS OF THE CORPORATION OR THE
MAKER, WHICH RIGHTS ARE HEREBY EXPRESSLY RESERVED BY EACH, TO TERMINATE MAKER'S
EMPLOYMENT AT ANY TIME FOR ANY REASON WHATSOEVER, WITH OR WITHOUT CAUSE.
8. General Provisions.
8.1 Attorneys' Fees. If any attorney is engaged by Holder to
enforce or construe any provision of this Promissory Note or the Pledge
Agreement, or as a consequence of any default or Event of Default, with or
without the filing of any legal action or proceeding, then Maker shall
immediately pay on demand all attorneys' fees and all other costs and expenses
incurred by Holder, including, without limitation, post-judgment attorneys' fees
and costs, together with interest thereon from the date of such demand until
paid at the rate of interest applicable to the principal owing hereunder as if
such unpaid attorneys' fees and costs had been added to the principal. Maker
shall also reimburse Holder for all attorneys' fees and all other costs and
expenses reasonably incurred in the representation of Holder in any bankruptcy,
insolvency, reorganization or other debtor-relief proceeding of or relating to
Maker or any security for this Promissory Note.
8.2 Binding on Successors. The terms of this Promissory Note shall
apply to, inure to the benefit of and bind all parties hereto, their heirs,
legatees, devisees, administrators, executors, personal representatives,
successors and assigns. The term "Holder" shall include the Holder as well as
any other person or entity to whom this Promissory Note or any interest in this
Promissory Note is conveyed, transferred or assigned.
8.3 No Modifications. This Promissory Note shall not be changed or
modified orally, but in each instance only by an instrument in writing signed by
the party against which enforcement of such change, modification or waiver is
sought.
8.4 Severability. Every provision hereof is intended to be
severable. If any provision of this Promissory Note is determined by a court of
competent jurisdiction to be illegal, invalid or unenforceable, such illegality,
invalidity or unenforceability shall not affect the other provisions hereof,
which shall remain binding and enforceable.
8.5 Time is of Essence. It is agreed that time is of the essence
as to every term, condition and provision of this Promissory Note.
8.6 Waiver of Presentment, Protest and Demand. No person or entity
shall be a mere accommodation maker, but each shall be primarily and directly
liable hereunder. Maker and any endorsers or guarantors hereof severally waive:
presentment; demand; notice of dishonor; notice of default or delinquency;
notice of acceleration; notice of protest, demand and nonpayment; notice of
costs, expenses
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<PAGE> 4
or losses and interest thereon; notice of Late Charges; and diligence in taking
any action to collect any sums owing under this Promissory Note or in proceeding
against any of the rights or interests in or to properties securing payment of
this Promissory Note. Maker and any endorsers or guarantors hereof further
expressly agree that this Promissory Note, or any payment hereunder may be
extended from time to time, and consent to the acceptance of security or the
release of any security from this Promissory Note, including any real property
or other types of security, all without in any way affecting the liability of
Maker and any endorsers of guarantors hereof. All payments made under this
Promissory Note shall be made without any right of offset by the Maker.
8.7 Applicable Usury Laws. All agreements between Maker and
Holder, now existing or hereafter arising, are expressly limited so that in no
contingency or event whatsoever, whether by reason of advancement of the
proceeds hereof, acceleration of maturity of the unpaid principal balance
hereof, or otherwise, shall the amount paid or agreed to be paid to Holder for
the use, forbearance or detention of the money to be loaned hereunder or
otherwise, or for the performance or payment of any covenant or obligation
contained herein, exceed the highest lawful rate permissible under the
applicable usury law. If, from any circumstances whatsoever, fulfillment of any
provision hereof or any other agreement relating to this Promissory Note, at the
time performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law which a court of competent jurisdiction may
deem applicable hereto, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity, and if from any circumstance, Holder
shall ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance due hereunder as of the date such
amount is received or deemed to be received by Holder and not to the payment of
interest, or if such amount exceeds the unpaid balance of principal, such excess
shall be refunded to the Maker hereof. This provision is material to both Maker
and Holder and shall control every other provision of all agreements between the
Maker and Holder.
8.8 Governing Law. This Promissory Note shall be construed and
enforced in accordance with the laws of the State of California, except to the
extent that Federal laws preempt the laws of the State of California, and all
persons and entities in any manner obligated under this Promissory Note consent
to the jurisdiction of any Federal or State Court within the State of California
having proper venue and also consent to service of process by any means
authorized by California or Federal law. This Promissory Note shall be deemed
made and entered into in San Diego County.
8.9 Captions. The captions used herein are for convenience only
and do not in any way limit or amplify the terms and provisions hereof.
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 5
IN WITNESS WHEREOF, Maker has caused this Promissory Note to be duly
executed and acknowledged as of the day and year first above written.
MAKER PLEASE NOTE: UPON THE OCCURRENCE OF A DEFAULT OR ACCELERATION UNDER
THIS PROMISSORY NOTE, THE PLEDGE AGREEMENT AND CALIFORNIA PROCEDURE PERMIT THE
PLEDGEE UNDER THE PLEDGE AGREEMENT TO SELL THE PLEDGED SHARES AT A SALE HELD
WITHOUT SUPERVISION BY ANY COURT AFTER EXPIRATION OF A PERIOD PRESCRIBED BY LAW.
UNLESS YOU PROVIDE AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT BE ENTITLED
TO NOTICE OF THE COMMENCEMENT OF SALE PROCEEDINGS. HOLDER URGES YOU TO GIVE
PROMPT NOTICE OF ANY CHANGE IN YOUR ADDRESS SO THAT YOU MAY RECEIVE PROMPTLY ANY
NOTICE GIVEN PURSUANT TO THIS PROMISSORY NOTE AND THE PLEDGE AGREEMENT.
MAKER:
By: /s/ Peter Myers
-------------------------------------
Peter Myers
Address:
5350 Toscana Way, Apt. 402E
San Diego, California 92122
ACKNOWLEDGED AND AGREED:
COMBICHEM, INC.
By: /s/ Gail Erwin
----------------------------------
Name: Gail Erwin
--------------------------------
Its: Controller
---------------------------------
DO NOT DESTROY THIS ORIGINAL PROMISSORY NOTE: When paid, said original
Promissory Note, together with the Pledge Agreement and similar security
securing same, must be surrendered to Maker for cancellation and retention.
5
<PAGE> 6
STOCK PLEDGE AGREEMENT
In consideration of the loan which CombiChem, Inc., a Delaware corporation
("Company") having its principal offices in San Diego, California, has on this
day extended to the undersigned Peter Myers, a married man, and as security for
the payment of that certain promissory note ("Note") in the principal sum of One
Hundred Fifty Thousand Dollars ($150,000) payable to the Company on order which
the undersigned has on this day executed to evidence such loan, the undersigned
hereby grants the Company a security interest in, and assigns, transfers to and
pledges with the Company, the following securities and other property:
(i) 350,000 shares of the Company's voting Class A Common Stock which
were acquired April 25, 1995, and which have on this day been delivered to and
deposited with the Company, accompanied by a properly endorsed Assignment
Separate from Certificate in the form attached hereto as Exhibit A;
(ii) any and all new, additional or different securities of the Company
which are acquired by the undersigned pursuant to the undersigned's employment
by the Company, by or through bonuses, warrants, options or otherwise from the
date of this agreement until such time as all of the undersigned obligations
under the Note are fulfilled;
(iii) any and all new, additional or different securities subsequently
distributed with respect to the shares identified in (i) and (ii) above which
are to be delivered to and deposited with the Company pursuant to the
requirements of Paragraph 3 of this Stock Pledge Agreement;
(iv) any and all other property and money which is delivered to or comes
into the possession of the Company pursuant to the terms and provisions of this
Stock Pledge Agreement; and
(v) the proceeds of any sale, exchange or disposition of the property
and securities described in (i), (ii), (iii) or (iv) above.
All securities, property and money so assigned, transferred to and
pledged with the Company shall be herein referred to as the "Collateral." The
Company shall hold the Collateral in accordance with the following terms and
provisions:
1. Warranties. The undersigned hereby warrants that the undersigned is
the owner of the Collateral and has the right to pledge the Collateral and that
the Collateral is free from liens, adverse claims and other security interests.
2. Rights and Powers. The Company may, without obligation to do so,
exercise at any time and from time to time one or more of the following rights
and powers with respect to any or all of the Collateral:
(a) accept in its discretion, but subject to the limitations of
Paragraph 7(d) of this Stock Pledge Agreement, other property of the undersigned
in exchange for all or part of the Collateral and release Collateral to the
undersigned to the extent necessary to effect such exchange, and in such event
the money, property or securities received in the exchange shall be held by the
Company as substitute security for the Note and all other indebtedness secured
hereunder;
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<PAGE> 7
(b) perform such acts as are necessary to preserve and protect the
Collateral and the rights, powers and remedies granted with respect to such
Collateral by this Stock Pledge Agreement; and
(c) transfer record ownership of the Collateral to the Company or
its nominee and receive, endorse and give receipt for, or collect by legal
proceedings or otherwise, dividends or other distributions made or paid with
respect to the Collateral, provided and only if there exists at the time an
outstanding event of default under Paragraph 8 of this Stock Pledge Agreement.
Expenses reasonably incurred in the exercise of such rights and
powers shall be payable by the undersigned and form part of the indebtedness
secured hereunder as provided in Paragraph 10.
So long as there exists no event of default under Paragraph 8 of
this Stock Pledge Agreement, the undersigned may exercise all shareholder voting
rights and be entitled to receive any cash distribution with respect to the
Collateral. Accordingly, until such time as an event of default occurs under
this Stock Pledge Agreement, all proxy statements and other stockholder
materials which the Company receives with respect to the Collateral shall be
delivered to the undersigned at the address indicated below.
3. Duty to Deliver. Any new, additional or different securities which
may now or hereafter become distributable with respect to the Collateral by
reason of a stock dividend, stock split or reclassification of the capital stock
of the Company or by reason of a merger, consolidation or other reorganization
affecting the capital structure of the Company shall, upon receipt by the
undersigned, be promptly delivered to and deposited with the Company as part of
the Collateral hereunder. Such securities shall be accompanied by one or more
properly endorsed stock power assignments.
4. Care of Collateral. The Company shall exercise reasonable care in
the custody and preservation of the Collateral, but shall have no obligation to
initiate any action with respect to, or otherwise inform the undersigned of, any
conversion, call, exchange right, preemption right, subscription right, purchase
offer or other right or privilege relating to or affecting the Collateral. The
Company shall have no duty to preserve the rights of the undersigned against
adverse claims or to protect the Collateral against the possibility of a decline
in market value. The Company shall not be obligated to take any action with
respect to the Collateral requested by the undersigned unless the request is
made in writing and the Company determines that the requested action will not
unreasonably jeopardize the value of the Collateral as security for the Note and
other indebtedness secured hereunder.
The Company may at any time deliver all or part of the Collateral to
the undersigned, and the receipt thereof by the undersigned shall constitute a
complete and full acquittance for the Collateral so delivered. The Company shall
accordingly be discharged from any further liability or responsibility for the
delivered Collateral.
5. Payment of Taxes and Other Charges. The undersigned shall pay, prior
to the delinquency date, all taxes, liens, assessments and other charges against
the Collateral, and in the event of the undersigned's failure to do so, the
Company may at its election pay any or all of such taxes and charges without
contesting the validity or legality thereof. The payments so made shall become
part of the indebtedness secured hereunder and shall bear interest at the same
rate as provided for in the Note.
6. Transfer of Collateral. In connection with the transfer or
assignment of the Note (whether by negotiation, discount or otherwise), the
Company may transfer all or any part of the Collateral, and the transferee shall
thereupon succeed to all the rights, powers and remedies granted the
2
<PAGE> 8
Company hereunder with respect to the Collateral so transferred. Upon such
transfer, the Company shall be fully discharged from all liability and
responsibility for the transferred Collateral.
7. Release of Collateral.
(a) Upon the payment in full of all indebtedness secured
hereunder, the shares of the Company's common stock which have on this date been
pledged and deposited hereunder shall be released from pledge and returned to
the undersigned.
(b) There shall also be released at the same time as any
Collateral is released pursuant to subpart (a) of this Section 7, any additional
Collateral which may hereafter be pledged and deposited with the Company,
pursuant to the requirements of Paragraph 3, with respect to the shares of the
Company's common stock to be released.
(c) Within thirty (30) days after prepayment by the undersigned
(or payment upon acceleration) of the entire unpaid principal balance and all
accrued interest and other amounts due under the Note, the Company shall release
and return to the undersigned all shares of the Company's Common Stock and other
Collateral at the time held hereunder.
(d) In the event the Collateral becomes in whole or in part
comprised of "margin security" within the meaning of Section 207.2(d) of
Regulation G of the Federal Reserve Board, then no Collateral shall thereafter
be released or substituted under this Agreement unless:
(i) the amount of indebtedness at the time secured hereunder
is not in excess of the maximum loan value (as determined pursuant to the
provisions of Regulation G) of the Collateral remaining after the release or
substitution is effected; or
(ii) the amount of indebtedness secured hereunder is reduced
by at least the amount by which the maximum loan value of the new Collateral (if
any) deposited hereunder is less than the maximum loan value of the Collateral
to be released or otherwise withdrawn.
8. Events of Default. The occurrence of one or more of the following
events shall constitute an event of default under this Agreement:
(a) failure of the undersigned to pay principal and/or interest
when due under the Note, or any other default under the Note;
(b) the occurrence of any Event of Acceleration specified in the
Note;
(c) the failure of the undersigned to perform any obligation
imposed upon the undersigned by reason of this Stock Pledge Agreement; or
(d) the breach of any warranty of the undersigned contained in
this Stock Pledge Agreement.
Upon the occurrence of any such event of default, the Company may,
at its election, declare the Note and all other indebtedness secured hereunder
to become immediately due and payable and may exercise any or all of the rights
and remedies granted to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder. Any proceeds
3
<PAGE> 9
realized from the disposition of the Collateral pursuant to the power of sale
hereby granted to the Company shall first be applied to the payment of expenses
incurred by the Company in connection with the disposition, and the balance
shall be applied to the payment of the Note and any other indebtedness secured
hereunder in such order of application as the Company shall deem appropriate.
Any surplus proceeds shall be paid over to the undersigned. In the event such
proceeds prove insufficient to satisfy all indebtedness secured hereunder, then
the undersigned shall be personally liable for the deficiency.
9. Other Remedies. The rights, powers and remedies granted to the
Company pursuant to the provisions of this Stock Pledge Agreement shall be in
addition to all rights, powers and remedies granted to the Company under any
statute or rule of law. Any forbearance, failure or delay by the Company in
exercising any right, power or remedy under this Stock Pledge Agreement shall
not be deemed to be waiver of such right, power or remedy. Any single or partial
exercise of any right, power or remedy under this Stock Pledge Agreement shall
not preclude the further exercise thereof, and every right, power and remedy of
the Company under this Stock Pledge Agreement shall continue in full force and
effect until such right, power or remedy is specifically waived by an instrument
executed by the Company.
10. Costs and Expenses. All costs and expenses (including reasonable
attorneys' fees) incurred by the Company in the exercise or enforcement of any
right, power or remedy granted it under this Stock Pledge Agreement shall become
part of the indebtedness secured hereunder and shall be payable immediately by
the undersigned, without demand, and until paid shall bear interest at the rate
provided for in the Note.
11. Applicable Law. This Stock Pledge Agreement shall be governed by and
construed in accordance with the laws of the State of California and shall be
binding upon the executors, administrators, heirs, successors and assigns of the
undersigned.
12. Severability. If any provision of this Stock Pledge Agreement is
held to be invalid under applicable law, then such provision shall be
ineffective only to the extent of such invalidity, and neither the remainder of
such provision nor any other provisions of this Agreement shall be affected
thereby.
13. Joint and Several Obligations. The obligations of the undersigned in
this Stock Pledge Agreement shall be joint and several obligations.
14. Time is of Essence. It is agreed that time is of the essence as to
every term, condition and provision of this Stock Pledge Agreement.
15. Deposits and Notice. Any deposits from the undersigned to the
Company or from the Company to the undersigned ("Deposits") shall be given by
personal delivery to the other party or by United States certified or registered
mail, postage prepaid, return receipt requested, addressed to the party for whom
it is intended at its address as set forth below. Any notice, request, demand,
consent, approval or other communication ("Notice") provided or permitted under
this Stock Pledge Agreement, or any other instrument contemplated hereby, shall
be in writing, signed by the party giving such Notice, and shall be given by
personal delivery to the other party or by United States certified or registered
mail, postage prepaid, return receipt requested, addressed to the party for whom
it is intended at its address as set forth below. Unless otherwise specified,
Deposits and Notice shall be deemed given when received, but if delivery is not
accepted, on the earlier of the date delivery is refused or the third day after
same is deposited in any official United States Postal Depository. Any party
from time to time, by Notice to the other parties given as above set forth, may
change its address for purposes of receipt of any such deposits or
communication.
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<PAGE> 10
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned,
effective as of the 5th day of September, 1995.
/s/ Peter Myers
-----------------------------------------
Peter Myers
Address:
5350 Toscana Way, Apt. 402E
San Diego, California 92122
Agreed to and Accepted by:
CombiChem, Inc.,
a Delaware corporation,
By: /s/ Gail Erwin
--------------------------------
Printed Name: Gail Erwin
----------------------
Title: Controller
-----------------------------
Address: 9050 Camino Santa Fe
San Diego, California 92127
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<PAGE> 11
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, Peter Myers, a married man, hereby sell, assign and
transfer unto CombiChem, Inc., a California corporation (the "Company"), 350,000
shares of the Capital Stock of the Company, standing in my name on the books of
said Company represented by Certificate(s) No. 29 herewith and do hereby
irrevocably constitute and appoint Gail Erwin, Controller of the Company, to
transfer said stock on the books of the within-named corporation with full power
of substitution in the premises.
Dated: September 5, 1995
Signature:
/s/ Peter Myers
----------------------------------------
Peter Myers
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Stock Pledge Agreement between the above assignor and CombiChem,
Inc., dated September 5, 1995, and shall not be used in any manner except as
provided therein.
<PAGE> 12
EXHIBIT B
CONSENT OF SPOUSE
I, Judith Myers, spouse of Peter Myers, have read approved and agreed to
the terms the foregoing Stock Pledge Agreement ("Agreement"). In consideration
of the Company's loan of funds as set forth in the Note, I hereby appoint my
spouse as my attorney-in-fact with respect to the exercise of any rights under
the Agreement and agree to be bound by the provisions of the Agreement insofar
as I may have any rights in said Agreement or any shares is sued pursuant
thereto under the community property laws of the State of California or similar
laws relating to marital property in effect in the state of our residence as of
the date of the signing of the foregoing Agreement or thereafter.
Dated: September 5, 1995
/s/ Judith Myers
----------------------------------------
Judith Myers
<PAGE> 1
EXHIBIT 10.25
PROMISSORY NOTE SECURED BY DEED OF TRUST
$66,125.00 August 30, 1996
San Diego, California
FOR VALUE RECEIVED, the undersigned ("Maker"), promises to pay to
COMBICHEM, INC., a California corporation ("Holder"), or order, at 9050 Camino
Santa Fe, San Diego, California 92127, or at such other place as Holder may from
time to time designate, the principal sum of Sixty-Six Thousand One Hundred
Twenty-Five Dollars ($66,125.00) (the "Loan"), in the following amounts and on
the terms set forth below.
1. Payment. Principal and interest, if any, shall be due and payable as
follows:
1.1 Payment of Principal. Principal payments of Twenty-Two
Thousand Dollars ($22,000.00) each shall be made on or before each anniversary
of the date of this Note set forth above. The entire remaining balance of
principal and interest on delinquent payments, if any, shall be due and payable
in full on the Maturity Date set forth in Section 3 below; provided, however,
that if any payment of principal or interest on this Promissory Note shall
become due on a Saturday, Sunday or a public holiday under the laws of the State
of California, such payment shall be due on the next succeeding business day.
Except as otherwise provided herein or by applicable law, all payments shall be
applied first to any unpaid enforcement or collection costs, then to accrued but
unpaid interest, and the remainder shall be applied to principal. This
Promissory Note may be prepaid, in whole or in part, at any time without premium
or penalty. Partial prepayments shall not postpone or delay the date of any
subsequent payment.
1.2 Form of Payment. All amounts payable under this Promissory
Note are payable in lawful money of the United States. Any payment shall be
deemed made upon receipt by Payee. Checks will constitute payment when
collected. All payments of principal and interest made hereunder shall be
evidenced by the internal records of Holder, which shall be prima facie evidence
of such matters.
2. Maturity Date.
The outstanding principal balance of this Promissory Note and all unpaid
interest accrued hereunder shall be due and payable no later than the "Maturity
Date." The Maturity Date shall be the earlier to occur of: (a) August 28, 1999;
(b) the expiration of the 30-day period following the date the Maker ceases for
any reason to remain in the employment on a regular and full-time basis by
CombiChem, Inc., a California corporation ("Corporation"); (c) the date on which
Corporation completes the consummation of any corporate transaction in which (i)
more than fifty percent (50%) of the outstanding shares of the common stock of
Holder are acquired by a single purchaser or by a group of purchasers acting in
concert; (ii) all or substantially all of the assets of Holder are acquired by a
single purchaser or a group of purchasers acting in concert; (d) that date on
which Corporation merges with or into another organization; or (e) the date of
transfer or further encumbrance by Borrower of (or any other person holding fee
title to) that certain real property described in Exhibit A to that certain Deed
of Trust securing this Note (the "Real Property"). Maker hereby covenants that
Maker shall provide Holder with written notice of any sale or transfer of the
Real Property at least ten (10) days prior to the date Maker transfers title to
the Real Property. Upon payment in full of all principal and accrued interest
payable hereunder, this Promissory Note shall be surrendered to Maker for
cancellation.
3. Security. This Promissory Note is secured by a deed of trust ("Deed
of Trust") encumbering certain real property located at 5440 Caminito Exquisito
in the City of San Diego, State of California.
4. Late Payment.
Maker agrees that if for any reason it fails to make any of the payments
required herein, including the amount due at the Maturity Date, within five (5)
days after the due date for the payment, Holder shall be
<PAGE> 2
entitled to damages for the detriment caused by such failure. Maker recognizes
that as a result of any payment required herein becoming overdue, Holder will
incur additional expenses in servicing the Loan not otherwise contemplated
hereunder, including, but not limited to, processing and accounting charges, the
loss to Holder of the use of money due and frustration to Holder in meeting its
other financial commitments. Maker further recognizes that the exact amount of
these additional expenses will be extremely difficult and impractical to
ascertain and agrees to pay an amount equal to five percent (5%) of such overdue
amounts ("Late Charge"). In order to compensate Holder for its additional
expenses resulting from Maker's continued failure to repay overdue amounts, one
(1) additional Late Charge shall be incurred by Maker every three (3) months, if
the overdue amount remains unpaid to Holder. Maker agrees to pay Holder such
additional Late Charge on the aggregate of all unpaid and overdue amounts,
including all previously incurred Late Charges. Acceptance of any Late Charge by
Holder shall in no event constitute a waiver of Maker's default with respect to
such overdue amount nor prevent Holder from exercising any other rights and
remedies granted under this Promissory Note or the Deed of Trust.
5. Default.
5.1 Events of Default. At the election of the Holder, in its sole
discretion, the entire unpaid principal balance of this Note, together with all
accrued and unpaid interest, shall become immediately due and payable prior to
the specified due date of this Note upon the occurrence of one or more of the
following events: (a) Maker dies; or (b) Maker shall default in the performance
of any of its obligations hereunder, including, without limitation, payment of
the balance due at the Maturity Date, when due; or (c) a default occurs under
the Deed of Trust or under any obligation secured thereby; (d) or any transfer
(except as contemplated by the Deed of Trust), conveyance, hypothecation,
assignment or encumbrance, whether voluntarily or involuntarily or by operation
of law or otherwise, of any beneficial interest in the Real Property or any
portion thereof, other than as expressly permitted by Holder in writing; or (e)
the making by the Maker of any assignment for the benefit of creditors or the
voluntary appointment (at the request or with the consent of the Maker) of a
receiver, custodian, liquidator or trustee in bankruptcy of any of the Maker's
property, or the filing by the Maker of a petition in bankruptcy or other
similar proceeding under any law for relief of debtors; or (f) the filing by or
against the Maker of any petition in bankruptcy or any petition for relief under
the provisions of the Federal bankruptcy act or any other state or Federal law
for the relief of debtors and the continuation of such petition without
dismissal for a period of sixty (60) days or more, the appointment of a receiver
or trustee to take possession of any property or assets of the Maker or the
attachment of or execution against any property or assets of the Maker (each of
the foregoing is sometimes referred to hereinafter as an "Event of Default").
Upon any of the foregoing Events of Default, the Holder of this Promissory Note,
at its election, may declare immediately due and payable the entire balance of
principal and interest thereon together with all cost of collection, including,
but not limited to, reasonable attorneys' fees and costs and all expenses
incurred in connection with the protection of or realization on any security for
this Promissory Note. At the option of Holder and upon five (5) days written
notice of or demand and in the event of any default or acceleration under this
Promissory Note, interest thereafter on the unpaid principal balance, accrued
Late Charges and additional costs incurred shall be payable at the lesser of ten
percent (10%) per annum, compounded quarterly, or the maximum rate permitted by
law. The Maker further understands that this is a full recourse promissory note.
5.2 No Waiver. In the event of any default or acceleration under
this Promissory Note, Maker agrees that the acceptance by Holder of any
performance which does not strictly comply with the terms of this Promissory
Note shall not be deemed to be a waiver of Holder's rights. No previous waiver
and no failure or delay by Holder in acting with respect to the terms of this
Promissory Note or the Deed of Trust shall constitute a waiver of any breach,
default or failure of condition under this Promissory Note or the Deed of Trust
or the obligations secured thereby. A waiver of any term of this Promissory Note
or the Deed of Trust or of any of the obligations secured thereby must be made
in writing and shall be limited to the express written terms of such waiver.
2
<PAGE> 3
6. Employment. For purposes of applying the provisions of this Note
under Section 6.1(b) above, the Maker shall be considered to remain in the
Corporation's employment for so long as the Maker renders services as a director
or full-time employee of the Corporation, any successor entity or one or more of
the Corporation's fifty percent (50%)-or-more owned (directly or indirectly)
subsidiaries. HOWEVER, NOTHING IN THIS PROMISSORY NOTE SHALL CONFER UPON THE
MAKER ANY RIGHT TO CONTINUE IN THE EMPLOYMENT OF THE CORPORATION (OR ITS
SUCCESSORS OR SUBSIDIARIES) FOR ANY PERIOD OF SPECIFIC DURATION OR INTERFERE
WITH OR OTHERWISE RESTRICT IN ANY WAY THE RIGHTS OF THE CORPORATION OR THE
MAKER, WHICH RIGHTS ARE HEREBY EXPRESSLY RESERVED BY EACH, TO TERMINATE MAKER'S
EMPLOYMENT AT ANY TIME FOR ANY REASON WHATSOEVER, WITH OR WITHOUT CAUSE.
7. General Provisions.
7.1 Attorneys' Fees. If any attorney is engaged by Holder to
enforce or construe any provision of this Promissory Note or the Deed of Trust,
or as a consequence of any default or Event of Default, with or without the
filing of any legal action or proceeding, then Maker shall immediately pay on
demand all attorneys' fees and all other costs and expenses incurred by Holder,
including, without limitation, post-judgment attorneys' fees and costs, together
with interest thereon from the date of such demand until paid at the rate of
interest applicable to the principal owing hereunder as if such unpaid
attorneys' fees and costs had been added to the principal. Maker shall also
reimburse Holder for all attorneys' fees and all other costs and expenses
reasonably incurred in the representation of Holder in any bankruptcy,
insolvency, reorganization or other debtor-relief proceeding of or relating to
Maker or any security for this Promissory Note.
7.2 Binding on Successors. The terms of this Promissory Note shall
apply to, inure to the benefit of and bind all parties hereto, their heirs,
legatees, devisees, administrators, executors, personal representatives,
successors and assigns. The term "Holder" shall include the Holder as well as
any other person or entity to whom this Promissory Note or any interest in this
Promissory Note is conveyed, transferred or assigned.
7.3 No Modifications. This Promissory Note shall not be changed or
modified orally, but in each instance only by an instrument in writing signed by
the party against which enforcement of such change, modification or waiver is
sought.
7.4 Severability. Every provision hereof is intended to be
severable. If any provision of this Promissory Note is determined by a court of
competent jurisdiction to be illegal, invalid or unenforceable, such illegality,
invalidity or unenforceability shall not affect the other provisions hereof,
which shall remain binding and enforceable.
7.5 Time is of Essence. It is agreed that time is of the essence
as to every term, condition and provision of this Promissory Note.
7.6 Waiver of Presentment, Protest and Demand. No person or entity
shall be a mere accommodation maker, but each shall be primarily and directly
liable hereunder. Maker and any endorsers or guarantors hereof severally waive:
presentment; demand; notice of dishonor; notice of default or delinquency;
notice of acceleration; notice of protest, demand and nonpayment; notice of
costs, expenses or losses and interest thereon; notice of Late Charges; and
diligence in taking any action to collect any sums owing under this Promissory
Note or in proceeding against any of the rights or interests in or to properties
securing payment of this Promissory Note. Maker and any endorsers or guarantors
hereof further expressly agree that this Promissory Note, or any payment
hereunder may be extended from time to time, and consent to the acceptance of
security or the release of any security from this Promissory Note, including any
real property or other types of security, all without in any way affecting the
liability of Maker and any endorsers of guarantors hereof. All payments made
under this Promissory Note shall be made without any right of offset by the
Maker.
3
<PAGE> 4
7.7 Applicable Usury Laws. All agreements between Maker and
Holder, now existing or hereafter arising, are expressly limited so that in no
contingency or event whatsoever, whether by reason of advancement of the
proceeds hereof, acceleration of maturity of the unpaid principal balance
hereof, or otherwise, shall the amount paid or agreed to be paid to Holder for
the use, forbearance or detention of the money to be loaned hereunder or
otherwise, or for the performance or payment of any covenant or obligation
contained herein, exceed the highest lawful rate permissible under the
applicable usury law. If, from any circumstances whatsoever, fulfillment of any
provision hereof or any other agreement relating to this Promissory Note, at the
time performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law which a court of competent jurisdiction may
deem applicable hereto, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity, and if from any circumstance, Holder
shall ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance due hereunder as of the date such
amount is received or deemed to be received by Holder and not to the payment of
interest, or if such amount exceeds the unpaid balance of principal, such excess
shall be refunded to the Maker hereof. This provision is material to both Maker
and Holder and shall control every other provision of all agreements between the
Maker and Holder.
7.8 Governing Law. This Promissory Note shall be construed and
enforced in accordance with the laws of the State of California, except to the
extent that Federal laws preempt the laws of the State of California, and all
persons and entities in any manner obligated under this Promissory Note consent
to the jurisdiction of any Federal or State Court within the State of California
having proper venue and also consent to service of process by any means
authorized by California or Federal law. This Promissory Note shall be deemed
made and entered into in San Diego County.
7.9 Captions. The captions used herein are for convenience only
and do not in any way limit or amplify the terms and provisions hereof.
[Remainder of This Page Intentionally Left Blank]
4
<PAGE> 5
IN WITNESS WHEREOF, Maker has caused this Promissory Note to be duly
executed and acknowledged as of the day and year first above written.
MAKER PLEASE NOTE: UPON THE OCCURRENCE OF A DEFAULT OR ACCELERATION UNDER
THIS PROMISSORY NOTE, THE DEED OF TRUST AND CALIFORNIA PROCEDURE PERMIT THE
TRUSTEE UNDER THE DEED OF TRUST TO SELL THE REAL PROPERTY AT A SALE HELD WITHOUT
SUPERVISION BY ANY COURT AFTER EXPIRATION OF A PERIOD PRESCRIBED BY LAW. UNLESS
YOU PROVIDE AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT BE ENTITLED TO
NOTICE OF THE COMMENCEMENT OF SALE PROCEEDINGS. HOLDER URGES YOU TO GIVE PROMPT
NOTICE OF ANY CHANGE IN YOUR ADDRESS SO THAT YOU MAY RECEIVE PROMPTLY ANY NOTICE
GIVEN PURSUANT TO THIS PROMISSORY NOTE AND THE DEED OF TRUST.
MAKER:
By: /s/ John Saunders
-------------------------------------
John Saunders
Address:
5440 Caminito Exquisito
San Diego, California 92130
DO NOT DESTROY THIS ORIGINAL PROMISSORY NOTE: When paid, said original
Promissory Note, together with the Deed of Trust and similar security securing
same, must be surrendered to Maker for cancellation and retention.
5
<PAGE> 1
EXHIBIT 10.26
PROMISSORY NOTE
$96,000.00 February 24, 1997
San Diego, California
VICENTE ANIDO, JR., an individual resident of the State of California
("Obligor"), for value received, hereby promises to pay to the order of
COMBICHEM, INC., a California corporation, or holder ("Payee"), in lawful money
of the United States at 9050 Camino Santa Fe, San Diego, California 92121, the
principal sum of Ninety-Six Thousand Dollars ($96,000.00).
Unpaid principal of this Note shall bear no interest.
All unpaid principal under this Note shall be due and payable on the
earlier of (a) February 23, 2002; (b) the expiration of the 60-day period
following the date the Obligor ceases for any reason to remain in the Service of
Payee; (c) the expiration of the 190-day period following the date on which
Payee completes an initial public offering of shares of its common stock; or (d)
the date on which Payee completes the consummation of any corporate transaction
in which (i) more than fifty percent (50%) of the outstanding shares of common
stock of Payee are acquired by a single purchaser or by a group of purchasers
acting in concert in a merger or any other transaction and Obligor receives cash
or publicly traded securities in connection therewith; or (ii) all or
substantially all of the assets of Payee are acquired by a single purchaser or a
group of purchasers acting in concert and Obligor receives cash or publicly
traded securities in connection therewith.
Nothing in this Note shall confer upon the Obligor any right to continue
in the Service of Payee (or its successors or subsidiaries) for any period of
specific duration.
Upon payment in full of all principal payable hereunder, this Note shall
be surrendered to Obligor for cancellation.
This Note may be transferred only upon surrender of the original Note for
registration of transfer, duly endorsed, or accompanied by a duly executed
written instrument of transfer in form satisfactory to Obligor. Thereupon, a new
note for like principal amount and interest will be issued to, and registered in
the name of, the transferee. Principal is payable only to the registered holder
of this Note.
Obligor waives presentment, demand for performance, notice of
nonperformance, protest, notice of protest, and notice of dishonor. No delay on
the part of Payee in exercising any right hereunder shall operate as a waiver of
such right under this Note.
<PAGE> 2
This Note is being delivered in and shall be construed in accordance with the
laws of the State of California.
If the indebtedness represented by this Note or any part thereof is
collected at law or in equity or in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for collection
after default, Obligor agrees to pay, in addition to the principal and interest
payable hereon, reasonable attorneys' fees and costs incurred by Payee.
Any payment shall be deemed made upon receipt by Payee.
This Note is the Note referred to in that certain Pledge Agreement
("Pledge Agreement") dated the same date as this Note between Obligor and Payee,
and is subject to the terms thereof. The Pledge Agreement, among other things,
contains provisions for acceleration of the maturity of this Note upon the
happening of any one or more of the stated "Events of Default" set forth
therein. OBLIGOR UNDERSTANDS THAT THIS IS A FULL RECOURSE PROMISSORY NOTE AND
THAT PAYEE MAY, AT ITS OPTION, PROCEED AGAINST ASSETS OF THE UNDERSIGNED OTHER
THAN ANY COLLATERAL UNDER THE PLEDGE AGREEMENT IN THE EVENT OF DEFAULT. OBLIGOR
ACKNOWLEDGES AND UNDERSTANDS THAT THE RULE 144 HOLDING PERIOD MAY BE TOLLED WITH
RESPECT TO ANY COMMON STOCK PLEDGED PURSUANT TO THE PLEDGE AGREEMENT.
Obligor acknowledges and agrees that he has been provided the opportunity
and encouraged to consult with counsel of Obligor's own choosing with respect to
this Agreement and that Brobeck, Phleger & Harrison LLP solely represents the
interests of the Payee.
IN WITNESS WHEREOF, Obligor has duly executed this Note, as of the date
first above written.
/s/ Vicente Anido
----------------------------------------
Vicente Anido, Jr.
-2-
<PAGE> 1
EXHIBIT 10.27
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement"), dated as of February 24, 1997, is
made between CombiChem, Inc., a California corporation ("Secured Party"), and
Vicente Anido, Jr., an individual resident of the State of California
("Pledgor").
Pledgor and Secured Party hereby agree as follows:
SECTION 1. Definitions; Interpretation.
(a) As used in this Agreement, the following terms shall have the
following meanings:
"Event of Default" has the meaning set forth in Section 6.
"Lien" means any mortgage, deed of trust, pledge, security interest,
assignment, deposit arrangement, charge or encumbrance, lien, or other type of
preferential arrangement.
"Note" means that certain Promissory Note of even date herewith made by
Pledgor in favor of Secured Party, as amended, modified, renewed, extended or
replaced from time to time.
"Obligations" means the indebtedness, liabilities and other obligations of
Pledgor to Secured Party under or in connection with this Agreement and the
Note, including, without limitation, all unpaid principal of the Note, and all
other amounts payable by Pledgor to Secured Party thereunder or in connection
therewith, whether now existing or hereafter arising, and whether due or to
become due, absolute or contingent, liquidated or unliquidated, determined or
undetermined.
"Person" means an individual, corporation, partnership, joint venture,
trust, unincorporated organization, governmental agency or authority, or any
other entity of whatever nature.
"Pledged Collateral" has the meaning set forth in Section 2(a).
"Pledged Shares" means the Shares of the Secured Party's Common Stock
described in Schedule 1.
"Service" shall have the meaning set forth in Section 5.1 of that certain
Restricted Stock Purchase Agreement dated the date of this Agreement between
Secured Party and Pledgor.
<PAGE> 2
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the security interest in any Pledged Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
(b) All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in the Note.
(c) Where applicable and except as otherwise defined herein or in the
Note, terms used in this Agreement shall have the meanings assigned to them in
the UCC.
(d) In this Agreement, (i) the meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined; and (ii)
the captions and headings are for convenience of reference only and shall not
affect the construction of this Agreement.
SECTION 2. Security Interest.
(a) As security for the payment and performance of the Obligations,
Pledgor hereby pledges, assigns, transfers, hypothecates and sets over to
Secured Party, and hereby grants to Secured Party a security interest in, all of
Pledgor's right, title and interest in, to and under (i) the Pledged Shares,
(ii) all rights, interests and claims with respect to the Pledged Shares, (iii)
any securities, property, interest and other payments and distributions issued
as an addition to, in redemption of, in renewal or exchange for, in substitution
or upon conversion of, or otherwise on account of, the Pledged Shares, and (iv)
all cash and non-cash proceeds of the Pledged Shares and any of the foregoing,
in each case from time to time received or receivable by, or otherwise paid or
distributed to, the Pledgor, and whether presently existing or owned or
hereafter arising or acquired and wherever located (collectively, the "Pledged
Collateral").
(b) Pledgor hereby agrees to deliver to or for the account of Secured
Party, at the address and to the Person or Persons to be designated by Secured
Party, the Pledged Shares, which shall be accompanied by duly executed
assignments in blank, in form attached hereto as Exhibit A.
(c) If Pledgor shall become entitled to receive or shall receive any
securities or other instruments or obligations as an addition to, in redemption
of, in renewal or exchange for, in substitution or upon conversion of, or
otherwise on account of, the Pledged Shares, Pledgor shall accept the foregoing
as Secured Party's agent. Upon accepting any of the foregoing, Pledgor shall
promptly send a notification to Secured Party with a description thereof, which
notification shall be deemed to be a Schedule to this Agreement and may be
attached hereto.
2.
<PAGE> 3
(d) Pledgor shall execute and deliver to Secured Party concurrently with
the execution of this Agreement, and at any time and from time to time
thereafter, all financing statements, assignments, continuation financing
statements, termination statements, endorsements, and other documents and
instruments, in a form reasonably satisfactory to Secured Party, and take all
other action, as Secured Party may reasonably request, to effect a transfer of a
perfected first priority security interest in and pledge of the Pledged
Collateral to Secured Party pursuant to the UCC and to continue perfected,
maintain the priority of or provide notice of the security interest of Secured
Party in the Pledged Collateral and to accomplish the purposes of this
Agreement.
(e) Pledgor agrees that this Agreement shall create a continuing
security interest in and pledge of the Pledged Collateral which shall remain in
effect until terminated in accordance with Section 16.
(f) Pledgor hereby consents to any assignment of the Pledged Collateral
and the security interests related thereto. After any such assignment, such
assignee shall be the Secured Party hereunder and shall possess all the rights
of Secured Party hereunder.
SECTION 3. Representations and Warranties. Pledgor represents and warrants
to Secured Party that:
(a) Pledgor has all requisite power and authority to execute, deliver
and perform its obligations under this Agreement.
(b) This Agreement constitutes the legal, valid and binding obligation
of Pledgor, enforceable against Pledgor in accordance with its terms.
(c) No authorization, consent, approval, license, exemption of, or
filing or registration with, any governmental authority or agency, or approval
or consent of any other Person, is required for the due execution, delivery or
performance by Pledgor of this Agreement.
(d) Pledgor is the legal and beneficial owner of the Pledged Shares
subject to no Lien except for the pledge and security interest created by this
Agreement.
(e) Pledgor's residence is located at the address set forth on the
signature pages hereof.
SECTION 4. Covenants. So long as any of the Obligations remain
unsatisfied, Pledgor agrees that:
(a) Pledgor will, at its own expense, appear in and defend any action,
suit or proceeding which purports to affect its title to, or right or interest
in, the Pledged Collateral or the security interest of Secured Party therein and
the pledge to Secured Party thereof.
3.
<PAGE> 4
(b) Pledgor will not surrender or lose possession of (other than to
Secured Party), exchange, sell, convey, transfer, assign or otherwise dispose of
or transfer the Pledged Collateral or any right, title or interest therein.
(c) Pledgor will not create, incur or permit to exist any Liens upon or
with respect to the Pledged Collateral, other than the security interest of and
pledge to Secured Party created by this Agreement.
SECTION 5. Payments on the Pledged Collateral.
(a) Unless an Event of Default shall have occurred, Pledgor shall be
entitled to receive and retain for its own account any dividends in respect of
the Pledged Collateral; provided that Secured Party shall receive, and Pledgor
shall not be entitled to receive, any cash paid, payable or otherwise
distributed, and any other property, instruments, securities or obligations, in
redemption of, or in exchange for or in substitution of, any Pledged Collateral.
Upon and after the occurrence and during the continuance of any Event of
Default, Secured Party shall be entitled to receive all distributions and
payments of any nature with respect to the Pledged Collateral, to be held by
Secured Party as part of the Pledged Collateral.
(b) Distributions and other payments and property which are received by
Pledgor but which it is not entitled to retain as a result of the operation of
subsection (a) shall be held in trust for the benefit of Secured Party, be
segregated from the other property or funds of Pledgor, and be forthwith paid
over or delivered to Secured Party in the same form as so received.
SECTION 6. Events of Default. Any of the following events which shall
occur and be continuing shall constitute an "Event of Default":
(a) Pledgor shall fail to pay when due any amount payable hereunder or
under the Note and such failure shall continue for five (5) days.
(b) Any representation or warranty by Pledgor under or in connection
with this Agreement or the Note shall prove to have been incorrect in any
material respect when made or deemed made.
(c) Pledgor shall fail to perform or observe in any material respect any
other term, covenant or agreement contained in this Agreement or the Note on its
part to be performed or observed and any such failure shall remain unremedied
for a period of fifteen (15) days from the occurrence thereof.
(d) Any impairment in the priority of Secured Party's Lien hereunder.
(e) Any levy upon, seizure or attachment of any of the Pledged
Collateral.
(f) Pledgor's Service with Secured Party shall be terminated for any
reason.
4.
<PAGE> 5
SECTION 7. Remedies.
(a) Upon the occurrence and during the continuance of any Event of
Default, Secured Party may declare any of the Obligations to be immediately due
and payable and shall have, in addition to all other rights and remedies granted
to it in this Agreement or the Note, all rights and remedies of a secured party
under the UCC and other applicable laws. Without limiting the generality of the
foregoing, Pledgor agrees that any item of the Pledged Collateral may be sold
for cash or on credit or for future delivery without assumption of any credit
risk, in any number of lots at the same or different times, at any exchange,
brokers' board or elsewhere, by public or private sale, and at such times and on
such terms, as Secured Party shall determine; provided, however, that Pledgor
shall be credited with the net proceeds of sale only when such proceeds are
finally collected by Secured Party in cash. Pledgor hereby agrees that the
sending of notice by ordinary mail, postage prepaid, to the address of Pledgor
set forth herein, of the place and time of any public sale or of the time after
which any private sale or other intended disposition is to be made, shall be
deemed reasonable notice thereof if such notice is sent ten (10) days prior to
the date of such sale or other disposition or the date on or after which such
sale or other disposition may occur; provided that Secured Party may provide
Pledgor shorter notice or no notice, to the extent permitted by the UCC or other
applicable law. The Pledgor and the Secured Party agree that such notice
constitutes "notice" within the meaning of Section 9504(3) of the UCC. Pledgor
recognizes that Secured Party may be unable to make a public sale of any or all
of the Pledged Collateral, by reason of prohibitions contained in applicable
securities laws or otherwise, and expressly agrees that a private sale to a
restricted group of purchasers for investment and not with a view to any
distribution thereof shall be considered a commercially reasonable sale. Secured
Party shall have the right upon any such public sale, and, to the extent
permitted by law, upon any such private sale, to purchase the whole or any part
of the Pledged Collateral so sold, free of any right or equity of redemption,
which right or equity of redemption Pledgor hereby releases to the extent
permitted by law.
(b) For the purpose of enabling Secured Party to exercise its rights
under this Section 7 or otherwise in connection with this Agreement, Pledgor
hereby constitutes and appoints Secured Party its true and lawful attorney, with
full power of substitution, in the name of the Pledgor, the Secured Party or
otherwise, for the sole use and benefit of the Secured Party, but at the expense
of the Pledgor, to the extent permitted by law to exercise, at any time and from
time to time while an Event of Default has occurred and is continuing, all or
any of the following powers with respect to all or any of the Pledged
Collateral: (i) to demand, sue for, collect, receive and give acquittance for
any and all monies due or to become due upon or by virtue thereof; (ii) to
settle, compromise, compound, prosecute or defend any action or proceeding with
respect thereto; (iii) to sell, transfer, assign or otherwise deal in or with
the same or the proceeds or avails thereof, as fully and effectually as if the
Secured Party were the absolute owner thereof; and (iv) to extend the time of
payment of any or all thereof and to make any allowance and other adjustments
with reference thereto.
5.
<PAGE> 6
(c) The cash proceeds actually received from the sale or other
disposition or collection of Pledged Collateral, and any other amounts received
in respect of the Pledged Collateral the application of which is not otherwise
provided for herein, shall be applied first, to the payment of the reasonable
costs and expenses of Secured Party in exercising or enforcing its rights
hereunder and in collecting or attempting to collect any of the Pledged
Collateral, and to the payment of all other amounts payable to Secured Party
pursuant to Section 10; and second, to the payment of the Obligations. Any
surplus thereof which exists after payment and performance in full of the
Obligations shall be promptly paid over to Pledgor or otherwise disposed of in
accordance with the UCC or other applicable law. Pledgor shall remain liable to
Secured Party for any deficiency which exists after any sale or other
disposition or collection of Pledged Collateral.
SECTION 8. Notices. All notices or other communications hereunder shall be
in writing and mailed, sent or delivered (including by facsimile transmission)
to the respective parties hereto at or to their respective addresses or
facsimile numbers set forth below their names on the signature pages hereof, or
at or to such other address or facsimile number as shall be designated by any
party in a written notice to the other parties hereto. All such notices and
other communications shall be effective: (i) if delivered by hand, when
delivered; (ii) if sent by mail, upon the earlier of the date of receipt or five
business days after deposit in the mail, first class; and (iii) if sent by
facsimile transmission, when sent.
SECTION 9. No Waiver; Cumulative Remedies. No failure on the part of
Secured Party to exercise, and no delay in exercising, any right, remedy, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to Secured Party.
SECTION 10. Costs and Expenses. Pledgor agrees to pay on demand all costs
and expenses of Secured Party, including reasonable attorneys' fees, in
connection with the enforcement of this agreement, and the sale or collection
of, or other realization upon, any of the Pledged Collateral.
SECTION 11. Binding Effect. Subject to the restrictions on assignment
contained in the Note, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by Pledgor, Secured Party and their respective
successors and assigns.
SECTION 12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of California, except as
required by mandatory provisions of law and to the extent the validity or
perfection of the security interests hereunder, or the remedies hereunder, in
respect of any Pledged Collateral are governed by the law of a jurisdiction
other than California.
6.
<PAGE> 7
SECTION 13. Entire Agreement; Amendment. This Agreement contains the
entire agreement of the parties with respect to the subject matter hereof and
shall not be amended except by the written agreement of the parties.
SECTION 14. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 15. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
SECTION 16. Termination. Upon payment and performance in full of all
Obligations, this Agreement shall terminate and Secured Party shall promptly
redeliver to Pledgor any of the Pledged Collateral in Secured Party's possession
and shall execute and deliver to Pledgor such documents and instruments
reasonably requested by Pledgor as shall be necessary to evidence termination of
all security interests given by Pledgor to Secured Party hereunder; provided,
however, that the obligations of Pledgor under Section 10 shall survive such
termination.
SECTION 17. Conflicts. In the event of any conflict or inconsistency
between this Agreement and the Note, the terms of this Agreement shall control.
SECTION 18. Separate Counsel. Pledgor acknowledges and agrees that he has
been provided the opportunity and encouraged to consult with counsel of
Pledgor's own choosing with respect to this Agreement and that Brobeck, Phleger
& Harrison LLP solely represents the interests of the Secured Party.
SECTION 19. No Employment or Service Contract. Nothing in this Agreement
shall confer upon Pledgor any right to continue to serve as an employee of
Secured Party for any period of specific duration.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
as of the date first above written.
SECURED PARTY
COMBICHEM, INC.
By: /s/ Peter Myers
-------------------------------------
Title: C.O.O. C.S.O.
----------------------------------
9050 Camino Santa Fe
San Diego, CA 92121
Fax: (619) 530-9998
PLEDGOR
/s/ Vicente Anido
-----------------------------------------
Vicente Anido, Jr.
1621 Bayside Drive
Corona Del Mar, CA 92625
Fax: (714) 759-8116
[SIGNATURE PAGE TO PLEDGE AGREEMENT]
<PAGE> 9
SCHEDULE 1
PLEDGED SHARES
Shares of
CombiChem, Inc.
<TABLE>
<CAPTION>
Name and Address Common Stock Date of Issuance
---------------- ------------ ----------------
<S> <C> <C>
Vicente Anido, Jr. 1,280,000 February 24, 1997
1621 Bayside Drive
Corona Del Mar, CA
92625
</TABLE>
S-1
<PAGE> 10
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, Vicente Anido, Jr., hereby sell, assign and
transfer unto _______________________ ___________________________ (_______)
shares of the Common Stock of CombiChem, Inc., standing in my name on the books
of said corporation represented by Certificate No. 36 herewith and do hereby
irrevocably constitute and appoint attorney to transfer said stock on the books
of the within-named corporation with full power of substitution in the premises.
Dated: ______________________
Signature:
/s/ Vicente Anido
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Pledge Agreement between the above assignor and CombiChem, Inc.,
dated as of February 24, 1997.
A-1
<PAGE> 11
EXHIBIT B
CONSENT OF SPOUSE
I, Patricia A. Anido, the spouse of Vicente Anido, Jr., the Pledgor in the
foregoing Pledge Agreement between my husband and CombiChem, Inc. (the
"Company"), acknowledge that I have reviewed the Agreement. I hereby appoint my
spouse as my attorney-in-fact with respect to the exercise of any rights under
the Agreement and agree to be bound by the provisions of the Agreement insofar
as I have any rights in the Agreement or any shares of the Company.
Effective: February 24, 1997
/s/ Patricia A. Anido
-----------------------------------------
[Signature]
Patricia A. Anido
-----------------------------------------
[Print Name]
B-1
<PAGE> 1
EXHIBIT 10.28
PROMISSORY NOTE SECURED BY
STOCK PLEDGE AGREEMENT
$23,043.77 San Diego, California
June 6, 1997
For value received, the undersigned ("Maker") hereby promises to pay to
CombiChem, Inc., a California corporation ("Holder"), at 9050 Camino Santa Fe,
San Diego, California, the principal amount of Twenty Three Thousand Forty Three
and 77/100 Dollars ($23,043.77), together with interest thereon from the date
hereof. Interest shall accrue at the rate of 6.14% per annum, compounded
semi-annually, provided that in no event shall the rate of interest be less than
the minimum rate required to avoid the imputation of interest under the Internal
Revenue Code.
The performance of the Maker's obligations under this Promissory Note are
secured by the pledge of shares of the common stock of Holder (the "Pledged
Shares") pursuant to the terms of that certain Stock Pledge Agreement entered
into by and between the Maker and the Holder of even date herewith (the "Stock
Pledge Agreement").
All principal shall be due and payable in equal annual installments on the
first, second, third and fourth anniversaries of the date of this Promissory
Note, upon which fourth anniversary all then unpaid principal and accrued
interest shall be due and payable in full.
Payment shall be made in lawful tender of the United States. Except as
otherwise provided herein or by applicable law, all payments shall be applied
first to any unpaid enforcement or collection costs, then to accrued interest
but unpaid interest, and the remainder shall be applied to principal.
This Promissory Note may be prepaid in whole or in part at any time
without premium or penalty. Partial prepayments shall not postpone or delay the
date of any subsequent payment.
Each of the following events shall constitute a default ("Default") under
this Promissory Note:
(a) The Maker's failure to pay when due any payment of principal
or interest due under this Note;
(b) The Maker's failure to perform or observe any of the terms or
conditions of the Stock Pledge Agreement;
<PAGE> 2
(c) The Maker's failure to perform or observe any of the terms or
conditions of the Stock Purchase Agreement between Maker and Holder of
even date herewith;
(d) The making by the Maker of any assignment for the benefit of
creditors or the voluntary appointment (at the request or with the consent
of the Maker) of a receiver, custodian, liquidator or trustee in
bankruptcy of any of the Maker's property, or the filing by the Maker of a
petition in bankruptcy or other similar proceeding under any law for
relief of debtors; or
(e) The filing against the Maker of a petition in bankruptcy or
other similar proceeding under any law for relief of debtors, or the
involuntary appointment of a receiver, custodian, liquidator or trustee in
bankruptcy of the property of the Maker, if such petition or appointment
is not vacated or discharged within sixty (60) calendar days after the
filing or making thereof.
Upon the occurrence of any Default, the Holder may, at its option, declare
the entire unpaid principal balance and accrued interest to be immediately due
and payable, without notice to the Maker. The Maker further understands that
this is a full recourse promissory note and that the Holder may, at its option,
proceed against assets of the undersigned other than the Pledged Stock (as
defined in the Stock Pledge Agreement) under the Stock Pledge Agreement in the
event of a Default.
The Maker promises to pay all costs and expenses (including reasonable
attorneys' fees) incurred by the Holder in the exercise or enforcement of any
right under this Promissory Note.
The acceptance by Holder of any payment hereunder which is less than the
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express written
consent of Holder except as and to the extent otherwise provided by law.
The Maker waives diligence, presentment, protest and demand and also
notice of protest, demand, dishonor and nonpayment of this Promissory Note, and
expressly agrees that this Promissory Note, or any payment hereunder, may be
extended from time to time and consents to the acceptance of security, if any,
or the release of security, if any, from this Promissory Note, all without in
any way affecting the liability of the Maker.
The right to plead any and all statutes of limitations as a defense to any
demand on this Promissory Note or any agreement to the same, or any instrument
securing this Promissory Note, or any and all obligations or liabilities arising
out of or in connection with this Promissory Note, is expressly waived by the
Maker to the fullest extent permitted by law.
<PAGE> 3
No extension of the time for the payment of this Promissory Note, or any
installment hereof, made by agreement by the Holder hereof with any person now
or hereafter liable for the payment of this Promissory Note shall affect the
original liability under the terms of this Promissory Note by the Maker even if
it is not a party to such agreement.
If Holder should institute collection efforts, of any nature whatsoever,
to attempt to collect any and all amounts due hereunder upon the default of the
Maker, the Maker shall be liable to pay to Holder immediately and without demand
all reasonable costs and expenses of collection incurred by Holder, including,
without limitation, reasonable attorneys' fees, whether suit or other action or
proceeding be instituted and specifically including, without limitation,
collection efforts that may be made through a bankruptcy court, and all such
sums shall be fully secured by the Pledged Stock pursuant to the Stock Pledge
Agreement.
The provisions of this Promissory Note are intended by the Maker to be
severable and divisible and the invalidity or unenforceability of a provision or
term herein shall not invalidate or render unenforceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed by and construed and interpreted in
accordance with the internal laws of the State of California.
THE "MAKER"
/s/ Vicente Anido
-----------------------------------------
[INSERT NAME OF MAKER]
-3-
<PAGE> 1
EXHIBIT 10.29
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Agreement") is entered into as of June 6,
1997, by and between CombiChem, Inc., a California corporation ("Secured
Party"), and Vicente Anido ("Pledgor"), with reference to the following facts:
A. Contemporaneously with the execution of this Agreement and pursuant
to a certain Stock Purchase Agreement, dated the date hereof, by and between
Pledgor and Secured Party (the "Stock Purchase Agreement"), Pledgor is
delivering a Promissory Note Secured by Stock Pledge Agreement to Secured Party
in the original principal amount of Twenty Three Thousand Forty Three and 77/100
Dollars ($23,043.77) (the "Promissory Note"), in order to evidence a loan which
Secured Party has agreed to make to Pledgor in connection with Pledgor's
purchase of shares of Secured Party's Common Stock pursuant to the Stock
Purchase Agreement.
B. Pledgor desires to secure its obligations under the Promissory Note
by granting Secured Party a first priority security interest in the shares of
Common Stock of Secured Party being acquired by Pledgor under the Stock Purchase
Agreement, and any and all new or additional securities of Secured Party
subsequently acquired by or distributed to Pledgor.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties hereby agree as follows:
1. Security. The term "Pledged Stock" shall mean Four Hundred Nine
Thousand Six Hundred Sixty Seven (409,667) shares of Common Stock of Secured
Party registered in the name of Pledgor, together with all certificates,
options, rights or other securities of Secured Party acquired by Pledgor
including any distributions issued as an addition to, in substitution or in
exchange for, or on account of, any such shares, and all proceeds of the
foregoing, as further described in and subject to the provisions of Section 4
below, now or hereafter owned or acquired by Pledgor, and any and all new or
additional securities subsequently distributed to Pledgor by Secured Party.
2. Grant of Security Interest. As security for full and timely payment,
performance and satisfaction of the Obligations (as defined in Section 3 below),
Pledgor hereby grants to Secured Party a first priority security interest in the
Pledged Stock. Upon the execution hereof, the Pledged Stock and any related
stock powers shall be deposited with Secured Party.
3. Obligations of Pledgor. As used herein, the term "Obligations" shall
mean: (a) all of Pledgor's obligations, covenants and agreements under the
Promissory Note and (b) all of Pledgor's obligations, covenants and agreements
under this Agreement.
<PAGE> 2
4. Pledged Stock. In the event Pledgor shall become entitled to receive
or shall receive, in connection with any of the Pledged Stock, (a) any stock
certificate, including any certificate representing a stock dividend or any
certificate in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split or spin-off, (b) any option, warrant or right, whether as an
addition to or in substitution of any of the Pledged Stock, or otherwise, (c)
any dividend or distribution payable in property, including securities issued as
a dividend on the Pledged Stock, or (d) any other distributions of any kind
whatsoever, Pledgor shall accept same as encumbered by the security interest
created hereby, and shall deliver same forthwith to Secured Party in the exact
form received, including as appropriate, Pledgor's endorsement or appropriate
stock powers duly executed in blank, to be held by Secured Party, as a part of
the Pledged Stock, subject to the terms hereof.
5. Representations and Warranties of Pledgor. Pledgor warrants and
represents to Secured Party that (a) Pledgor is the legal and beneficial owner
of all of the Pledged Stock, (b) all of the shares of the Pledged Stock are
owned by Pledgor free of any pledge, mortgage, lien or security interest of any
kind, except as created hereby, or under the Stock Purchase Agreement, and (c)
upon execution and delivery by Pledgor of this Agreement and upon delivery of
the Pledged Stock to Secured Party, this Agreement shall create a valid and
perfected first priority security interest in the Pledged Stock, and the
proceeds thereof, subject to no prior security interest.
6. Transfer of Interests. Pledgor hereby covenants that, until such
time as the Obligations have been fully paid, performed and satisfied, Pledgor
will not sell, convey or otherwise dispose of any of the Pledged Stock or any
interest therein, or create, incur or permit to exist any pledge, mortgage,
lien, charge, encumbrance or any security interest whatsoever in or with respect
to any of the Pledged Stock, or the proceeds thereof, other than the security
interest created hereby.
7. Default. As used herein, the term "Default" shall mean the failure
of full and timely payment or performance and satisfaction of any of the
Obligations.
8. Rights of Secured Party. Upon the occurrence of a Default, Secured
Party may, at its option, do any one or more of the following: (a) declare all
indebtedness of Pledgor to Secured Party to be immediately due and payable,
whereupon all unpaid principal and interest on the Promissory Note shall become
and be immediately due and payable; (b) exercise any and all of the rights and
remedies of a secured party as provided for by the California Commercial Code;
(c) proceed by an action or actions at law or in equity to recover the
indebtedness secured hereby or to foreclose this Agreement and sell the
collateral, or any portion thereof, pursuant to a judgment or decree of a court
or courts of competent jurisdiction; (d) proceed immediately to have any or all
of the Pledged Stock registered in Secured Party's name or in the name of a
nominee; (e) exercise all voting rights with respect to the Pledged Stock and
all other corporate rights, including any rights of conversion, exchange,
subscription or other rights, privileges or options pertaining thereto as if
Secured Party were the absolute owner thereof, including, without limitation,
the right to exchange any or all of the
<PAGE> 3
Pledged Stock upon the merger, consolidation, reorganization, recapitalization
or other readjustment of Pledgor; (f) enforce one or more remedies hereunder,
successively or concurrently; and (g) proceed immediately to dispose of and
realize upon the Pledged Stock, or any part thereof, and in connection
therewith, sell or otherwise dispose of and deliver the Pledged Stock, or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange, broker's board or at any of Secured Party's offices or elsewhere, at
such prices and on such terms as Secured Party may deem best, for cash or on
credit, or for future delivery without assumption of any credit risk, with the
right of Secured Party or any purchaser to purchase at any such sale either the
whole or any part of the Pledged Stock (in connection with any such sale or
disposition, Secured Party need not give more than thirty (30) calendar days
notice of the time and place of any public sale or of the time after which a
private sale may take place, which notice Pledgor hereby acknowledges to be
reasonable).
9. Proceeds. The proceeds of any disposition of all or any part of the
Pledged Stock, as provided in Section 8 above, shall be applied as follows: (a)
first, to the costs and expenses incurred in connection therewith or incidental
thereto, including reasonable attorneys' fees and legal expenses; (b) second, to
the satisfaction of the Obligations; (c) third, to the payment of any other
amounts required by applicable law; and (d) fourth, to Pledgor to the extent of
any surplus remaining.
10. Private Sale. Pledgor recognizes and acknowledges that Secured Party
may be unable to effect a public sale of all or a part of the Pledged Stock and
may elect to resort to one or more private sales to purchasers who will be
obligated to agree, among other things, to acquire the Pledged Stock for their
own account, for investment, and not with a view to the distribution or resale
thereof. Pledgor acknowledges that any such private sales may be at prices and
on terms less favorable than those of public sales, and agrees that such private
sales shall be deemed to have been made in a commercially reasonable manner and
that Secured Party has no obligation to delay sale of any Pledged Stock to
permit Pledgor to register it for public sale under the Securities Act of 1933,
as amended.
11. Release of Pledged Stock. Upon the execution hereof, Pledgor shall
deliver to Secured Party, the stock certificate or certificates representing the
Pledged Stock, including Pledgor's endorsement thereon or appropriate stock
powers duly executed in blank, to be held in accordance with the terms of this
Agreement. Provided all indebtedness secured hereunder shall at the time have
been paid in full, the Pledged Stock shall be released from pledge and returned
to Pledgor upon the full and final satisfaction of Pledgor's obligations under
the Promissory Note and this Agreement, subject to any continuing escrow
requirements under the Stock Purchase Agreement.
12. Partial Release of Pledged Stock. Provided that there are no unpaid
enforcement or collection costs due and payable under the terms of the
Promissory Note, and provided further that Pledgor executes such documents,
agreements and certificates as may reasonably be required by Holder in order to
effectuate the partial release contemplated herein, a portion of the shares of
Pledged Stock shall be released from
<PAGE> 4
pledge and returned to Pledgor upon receipt of a prepayment under the Promissory
Note, subject to any continuing escrow requirements under the Stock Purchase
Agreement. In the event such release is permitted pursuant to any such escrow,
the number of shares of Pledged Stock to be released from pledge and returned to
Pledgor shall be that number of shares of Pledged Stock which bears the same
ratio to the total number of shares of Pledged Stock as the amount of prepayment
under the Promissory Note bears to the total of the principal and accrued
interest then payable under the Promissory Note, provided that no fractional
shares shall be released from pledge under this paragraph 12.
13. Irrevocable Proxy and Power of Attorney. To further secure
Obligations hereunder, Pledgor grants the irrevocable proxy and power of
attorney set forth in this Section 13 to Secured Party for the purposes set
forth below. Pledgor hereby irrevocably constitutes and appoints Secured Party,
any person or entity who becomes the successor to Secured Party, or any officer
of Secured Party or such successor (the "Attorneys"), and each of the foregoing
acting singly, in each case with full power of substitution and resubstitution,
the true and lawful agent and attorney-in-fact of such Purchaser, with full
power and authority in such Purchaser's name, place and stead, to vote the
shares of Pledged Stock in favor of any corporate transaction which has
otherwise been approved by the shareholders of Secured Party and in which (i)
more than fifty percent (50%) of the outstanding shares of the common stock of
Secured Party will be acquired by a single purchaser or a group of purchasers
acting in concert, (ii) all or substantially all of the assets of Holder are
acquired by a single purchaser or group of purchasers, and (iii) Holder merges
with or into another organization; and to do and perform each and every other
act and thing whatsoever requisite, necessary or appropriate to be done to carry
out the purposes of this paragraph 13 as fully to all intents and purposes as
Pledgor might or could do if personally present, Pledgor hereby ratifying all
that such attorney-in-fact shall do or cause to be done by these presents. It is
expressly understood and intended by Pledgor that the irrevocable proxy and
power of attorney granted in this paragraph 13 is coupled with an interest, is
irrevocable and may be delegated by said Attorneys. The irrevocable proxy and
power of attorney shall survive the death or incapacity of such Pledgor and
shall continue until all Pledged Shares have been released from pledge
hereunder.
14. Voting Rights. Except as set forth in Paragraph 13 hereof, so long
as no Default shall have occurred or exist under this Agreement, Secured Party
shall have no voting rights with respect to the Pledged Stock.
15. Written Notices. Pledgor agrees to promptly deliver to Secured Party
a copy of all written notices received by Pledgor with respect to the Pledged
Stock.
16. Performance by Pledgor. Upon full payment and performance of all of
the Obligations by Pledgor and upon payment of all additional costs and expenses
provided herein, this Agreement shall terminate and Secured Party shall deliver
or caused to be delivered to Pledgor (except as set forth in the Stock Purchase
Agreement or otherwise),
<PAGE> 5
such of the Pledged Stock as shall not have been sold or otherwise disposed of
pursuant to this Agreement.
17. Remedies. The rights and remedies provided herein are cumulative and
are in addition to, and not exclusive of, any rights or remedies provided in
other instruments and agreements between Secured Party and Pledgor, or as
provided by law, including, without limitation, the rights and remedies of a
secured party under the California Commercial Code.
18. Successors and Assigns. This Agreement is binding upon and shall
inure to the benefit of the parties hereto, and their successors and assigns.
19. Governing Law. This Agreement has been accepted and is performable
within San Diego County, California. This Agreement shall be governed and
construed in accordance with the internal laws of the State of California.
20. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given on the
third business day after mailing within the United States, postage prepaid, by
registered or certified mail, return receipt requested, addressed as follows:
If to Pledgor: Vicente Anido, Jr.
c/o CombiChem, Inc.
9050 Camino Santa Fe
San Diego, CA 92121
If to Secured Party: CombiChem, Inc.
9050 Camino Santa Fe
San Diego, CA 92121
Each of the parties hereto shall be entitled to specify a different address by
giving written notice to the other parties hereto in accordance with this
Section 20.
21. Entire Agreement. This Agreement and any other agreement expressly
referred to herein supersedes any and all other agreements, either oral or in
writing, among the parties hereto, with respect to the subject matter hereof and
contains all of the covenants and agreements among the parties with respect to
the subject matter hereof.
22. Waiver; Modification. No term or condition of this Agreement shall
be deemed to have been waived nor shall there be any estoppel to enforce any
provision of this Agreement except by written instrument of the party charged
with such waiver or estoppel. No amendment or modification of this Agreement
shall be deemed effective unless and until executed in writing by all of the
parties hereto.
<PAGE> 6
23. Severability. All agreements and covenants contained herein are
severable and in the event that any of them shall be held to be invalid by any
court of competent jurisdiction, this Pledge Agreement shall be interpreted as
if such invalid agreements or covenants were not contained herein.
24. Delay; Time of Essence. No failure or delay by a party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, and
no single or partial exercise thereof shall preclude any other or further
exercise or the exercise of any other right, power, or privilege. Time is of the
essence of each and every provision of this Agreement of which time is an
element.
25. Attorneys' Fees. In any action or proceeding brought to enforce or
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
PLEDGOR: SECURED PARTY:
CombiChem, Inc.
/s/ Vicente Anido By: Peter L. Myer
- ------------------------------- -------------------------------------
[Name of Pledgor] Its: C.S.O./C.O.O.
------------------------------------
<PAGE> 7
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who will perform services is:
Name:
Address: c/o CombiChem, Inc.
9050 Camino Santa Fe
San Diego, California 92121
Social Security No.:
(2) The property with respect to which the election is being made is shares of
the Common Stock of CombiChem, Inc. (the "Company").
(3) The property was issued on _________________, 199_.
(4) The taxable year in which the election is being made is the calendar year
199_.
(5) The property is subject to a repurchase right pursuant to which the
Company has the right to acquire the property at the original purchase
price if for any reason taxpayer's service with the issuer is terminated.
The repurchase right will lapse with respect to the shares in
_____________, _______.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $____ per share.
(7) The amount paid for such property is $____ per share.
(8) A copy of this statement was furnished to the Company for whom taxpayer
will render the services underlying the transfer of property.
(9) This statement is executed as of: _____________________, 199_.
- ---------------------------------- ----------------------------------
Taxpayer Spouse (if any)
THIS FORM MUST BE FILED AT THE INTERNAL REVENUE SERVICE CENTER WHERE TAXPAYER
FILES HIS/HER FEDERAL INCOME TAX RETURNS. FILING MUST BE MADE WITHIN 30 DAYS
AFTER THE EXECUTION DATE OF THE SHAREHOLDER AGREEMENT.
<PAGE> 1
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of March 1,
1995, by and between CombiChem, Inc., a California corporation ("Employer") and
Peter Myers, Ph.D.
NOW, THEREFORE, the parties agree as follows:
1. Employment. Employer hereby engages Employee, and Employee hereby
accepts such engagement, upon the terms and conditions set forth herein.
2. Duties. During the term of this Agreement, Employee shall be
employed as the Employer's Executive Vice President of Research and Chief
Scientific Officer reporting to the President and Chief Executive Officer.
Employee shall faithfully and diligently perform the duties customarily
performed by persons in the position or positions for which Employee is engaged
together with such other reasonable and appropriate duties as Employer shall
designate from time to time. Employee shall devote Employee's full business time
and effort to the rendition of such services and to the performance of such
duties. As a full-time employee of Employer, Employee shall not be entitled to
provide consulting services or other businesses or scientific services to any
other party, without the prior written consent of Employer. Employee shall be
elected to Employer's Board of Directors (the "Board") prior to its next
regularly scheduled meeting.
3. Compensation.
3.1 Base Salary. During the term of this Agreement, as
compensation for the proper and satisfactory performance of all duties to be
performed by Employee hereunder, Employer shall pay to Employee err annual
salary of two hundred and ten thousand dollars ($210,000) payable in accordance
with Employee's standard payroll practices, less required deductions for state
and federal withholding tax, Social Security and all other employee taxes and
payroll deductions. Employee's base salary shall be reviewed annually by the
President & Chief Executive Officer and may be increased or decreased in the
sole discretion of the President & Chief Executive Officer.
3.2 Bonuses.
3.2.1 Signing Bonus. Employee shall receive a signing bonus of
$26,250 towards the purchase of CombiChem stock plus gross up for taxes as
described in Section 5.5.
<PAGE> 2
3.2.2 Performance Bonus. At the beginning of each fiscal year
Employer and Employee shall reach mutually agreed upon scientific and business
objectives for Employer for its upcoming fiscal year which shall be set forth in
writing and approved by the Board. At the end of each such fiscal year, the
Board shall determine, in its reasonable discretion, the size and amount of
Employee's performance bonus, if any, up to a maximum of twenty-five percent
(25%) of Employee's base salary during the prior fiscal year (the "Annual
Performance Bonus"). The Annual Performance Bonus shall be paid to Employee
within sixty (60) days following Employer's fiscal year end. The first Annual
Performance Bonus shall be (i) based on Employer's 1995 fiscal year
achievements; (ii) paid to Employee by March 1, 1996; (iii) guaranteed to be not
less than twenty-six thousand, two hundred and fifty dollars ($26,250); provided
that employee's employment has continued through the end of 1995. No other
Annual Performance bonus shall have any guaranteed minimum payment.
4. Term of Employment.
4.1 Period of Employment. The Employee's period of employment by
Employer pursuant to this Agreement shall commence on March 1, 1995
("Commencement Date") and end upon the date the employment relationship is
terminated pursuant to Section 4.2 or 4.3 (the "Period of Employment").
4.2 Termination at Will. Although Employer and Employee anticipate
a long and mutually rewarding employment relationship, either party may
terminate this Agreement, without cause, upon 14 days prior written notice
delivered to the other party. It is expressly understood and agreed that the
employment for any specified term, and without any agreement for employment for
so long as Employee performs satisfactorily.
4.3 Termination for Cause. Employer may immediately terminate this
employment relationship "for cause" upon written notice to Employee. the
purposes herein, "for cause" shall be limited to the following; (i) Employee's
intentional violation of any rule or policy of Employer or its subsidiaries (a
"Violation") which, after written notice of a Violation, Employee fails to
correct within twenty (20) days of receipt of such notice from the Board; (ii)
any material failure by Employee to comply with any reasonable directive of the
Board which, after receiving written notice to do so, Employee fails to comply
within twenty (20) days of receipt of such notice from the Board; (iii)
Employee's willful misconduct concerning any material responsibility reasonably
assigned to Employee; (iv) without obtaining the prior consent of the Board,
Employee's active and intentional performance of services for any other
cooperation or person which competes with Employer or its subsidiaries while he
is employed by Employer or its subsidiaries; (v) the Board reasonably determines
that Employee has stolen or embezzled wither funds or property of Employer; (vi)
Employee's conviction by a court of competent jurisdiction of a felony (other
than a traffic or moving violation) involving moral turpitude or dishonesty;
(vii) Employee's intentional or grossly negligent conduct or violation of law
which results in either an improper personal benefit to Employee for a material
injury to Employer; (viii) employees's failure to
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<PAGE> 3
perform a material duty given to him by the company's Chief Executive Officer or
under this agreement if such failure was continued for thirty (30) days after
employee has been notified in writing by the company of his failure to perform;
or (ix) the death or disability of Employee.
4.4 Obligations Upon Termination.
4.4.1 Survival of Obligations. The parties' obligations under
Section 4.4.2, 4.5, 6, 7, 9.7 and 9.8, shall survive the termination of this
Agreement.
4.4.2 Return of Materials at Termination. Upon termination of
the Period of Employment, the Employee will promptly deliver to Employer all
materials, property, documents, data, and other information belonging to
Employer or containing Employer's Trade Secrets or other Protected Information.
The Employee shall not take any materials, property, documents or other
information, or any reproduction or excerpt thereof, belonging to Employer or
containing any Trade Secrets or other Protected information of Employer.
4.4.3 Resignation. Upon termination of the Period of
Employment, the Employee shall be deemed to have resigned from any and all
offices then held with the Employer.
4.5 Compensation to Employee on Termination by Employer. In the
event that Employer terminates Employee pursuant to Paragraph 4.2, Employee
shall be entitled to (1) receive an aggregate severance benefit of nine months
of Employee's then current base salary (Section 3.1) and benefits (Section 5)
which shall be paid by Employer to employee in nine (9) equal monthly
installments until fully paid or until Employee has secured full-time employment
and (2) a nine (9) month credit towards any vesting schedule or vesting
requirements contained in any stock option or stock purchase agreements then
existing between the Employee and Employer. In the event the Employee elects to
receive and does receive any of the benefits set for in this Section 4.5,
Employee agrees that such payments shall constitute Employee's sole and
exclusive rights and entitlements in connection with Employee's employment by
Employer, the termination of such employment and any and all matters related to
or arising in connection with such employment, and agrees that his acceptance of
any such payments shall release Employee and any and all affiliated persons and
entities (including all directors, officers, employees and agents) from any
claims that Employee may otherwise have or assert in connection with such
matters. If Employee desires to pursue or enforce any such rights, entitlements
or remedies that would otherwise be waived and released, then Employee shall
refuse any payments provided for pursuant to this Section 4.5. if Employee
accepts any such severance payment or payments, he shall be deemed to have
agreed to the foregoing exclusivity of rights and waiver of claims.
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<PAGE> 4
5. Benefits
5.1 Health Insurance Vacation and Sick Leave. Employee shall be
entitled to Employer's standard benefits package for its executive employees
including, but not limited to, family health care insurance, officer and
director liability insurance (when obtained for Employer's other officers and
directors), vacation and sick leave (the "Fringe Benefits"). Employer agrees to
pay Employee's monthly COBRA continuation policy premiums until Employer's own
health care program is instituted for Employer's employees. Employer reserves
the right to change such benefits from time to time.
5.2 Life Insurance. Provided that Employee is insurable at
commercially reasonable rates, Employer shall obtain and maintain, during the
term of this Agreement and any extension thereof, a term life insurance policy
on the Employee's life in an amount no less than one million five hundred
thousand dollars ($1,500,000) (the "Life Insurance Policy"). Employer shall pay
the premiums and Employee shall designate the beneficiary of the Life Insurance
Policy.
5.3 Accumulation. Employee shall not earn and accumulate unused
vacation and sick leave, or other Fringe Benefits, in excess of an unused amount
equal to the amount earned for one year. Furthermore, Employee shall not be
entitled to receive payments in lieu of said Fringe Benefits, other than for
unused vacation earned and accumulated at the time the employment relationship
terminates. All unused sick leave and other Fringe Benefits earned during the
preceding twelve (12) month period ending on each anniversary of the date of
this Agreement shall be forfeited if not used within ninety (90) days following
such anniversary date. Notwithstanding the forgoing, if Employer adopts a more
favorable accumulation policy for its executives, Employee shall be entitled to
the benefits of such more favorable accumulation policy.
5.4 Personal Leave. Employee shall accrue fifteen days of personal
leave during each year of his employment. Upon accrual of fifteen days of unused
personal leave, no additional personal leave time will accrue until Employee has
used some of his accrued personal leave time and has reduced the amount of
accrued time below fifteen days. Once Employee has taken personal leave and his
accrued personal leave time has dropped below fifteen days, Employee shall begin
to accrue personal leave time again (at the rate of fifteen days per year), up
to the maximum of fifteen days. Notwithstanding the foregoing, if Employer
adopts a more favorable personal leave policy for its executives, Employee shall
be entitled to the benefits of such more favorable personal leave policy.
5.5 Housing and Automobile. For the first six (6) months of this
Agreement, Employer shall reimburse Employee each month for the first two
thousand ($2,000) of Employee's housing and automobile expenses. Any allowance
paid pursuant to this Section shall be "grossed up" to cover Employee's local,
state and federal income tax liability at Employee's then current marginal tax
rate if deemed necessary by the Employer's
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<PAGE> 5
accountants. The tax gross-up payment(s) shall initially be calculated at an
assumed effective rate of forty percent (40%) and paid to Employee no later than
(I) April 15 of the calendar year following any year Employee has expenses
reimbursed pursuant to this Section; and (ii) any date Employee is required to
make increased quarterly estimated payments due to Employee's receipt of the
allowance payments pursuant to this Section. Once Employee has finalized
Employee's federal and state income tax returns, Employee's effective marginal
rate shall be calculated and any shortfall or overpayment will be corrected.
5.6 Relocation Expenses. Employer shall reimburse Employee for the
following expenses: (1) selling expenses related to sale of Employee's current
residence in California including Realtor commissions and closing expenses
typically paid by sellers; (2) reasonable moving expenses incurred in the move
to San Diego, California; (3) the cost of up to two round trip coach airline
tickets from San Francisco to San Diego, California for Employee's spouse for
the purpose of looking at houses in the San Diego area during the first six (6)
months of this Agreement; and (4) a tax gross-up payment calculated at an
assumed effective marginal rate of forty percent (40%) to cover Employee's
income tax liability for expenses reimbursed pursuant to subsections (1), (2)
and (3) of this Section. Expenses related to subsections (1), (2) and (3) shall
be reimbursed within thirty (30) days after Employee submits adequate
verification of incurred expenses. The tax gross-up bonus related to subsection
(4) shall be paid to Employee no later than (i) April 15 of the calendar year
following any year Employee has expenses reimbursed pursuant to this Section;
and (ii) any date Employee is required to make increased quarterly estimated
payments due to Employee' receipt of reimbursed expenses pursuant to subsection
(1), (2) or (3) of this Section. Once Employee has finalized Employee's federal
and state income tax returns, Employee's effective marginal rate shall be
calculated and any shortfall or overpayment will be corrected. Notwithstanding
the foregoing, Employer's maximum aggregate obligations to Employee pursuant to
this Section shall not under any circumstances exceed ninety-five thousand
dollars ($95,000).
5.7 Home Loan. In the event Employee purchases a residence in San
Diego prior to November 15, 1996 and the equity remaining after the sale of
Employee's current California residence is less than the down payment for
Employee's first San Diego area residential purchase, then Employer shall
provide a second mortgage loan to Employee in an amount equal to such shortfall
on an interest free basis (the "Home Loan"); provided, however, that the Home
Loan shall (i) not be granted to Employee until Employer has obtained additional
cash infusions (in the form of equity investment or research and development
assistance, but not including any debt instrument financings) totaling a minimum
of five million dollars ($5,000,000); (ii) be utilized to purchase the
residence, (iii) not exceed one hundred fifty thousand dollars ($150,000), (iv)
be repaid in twenty equal quarterly payments (over five (5) years), (v) remain
secured by a second trust deed which is recorded at the time the Home Loan is
made and (vi) shall remain secured by all of Employer's capital stock then owned
or thereafter acquired by Employee until the Home Loan is repaid in full.
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<PAGE> 6
6. Inventions, Trade Secrets and Confidentiality.
6.1 Definitions.
6.1.1 Invention Defined. As used herein "Invention' mean
inventions, discoveries, concepts, and ideas, whether patentable or
copyrightable or not, including but not limited to processes, methods, formulas,
techniques, devices, designs, programs (including computer programs), computer
graphics, apparatus, products as well as improvements thereof or know-how
related thereto, relating to any present or anticipated business or activities
of Employer.
6.1.2 Trade Secrets Defined. As used herein "Trade Secret"
means, without limitation, any document or information relating to Employer's
products, processes or services, including documents and information relating to
Inventions, and to the research, development, engineering or manufacture of
Inventions, and to Employer's purchasing, customer or supplier lists and pricing
policies, which documents or information have been disclosed to Employee or
known to Employee as a consequence of or through Employee's employment by
Employer (including documents, information or Inventions conceived, originated,
discovered or developed by Employee), which is not generally known in the
relevant trade or industry.
6.1.3 Protected Information. As used in this Agreement, the
term "Protected Information" shall mean, without limitation, all trade secrets,
confidential or proprietary information, and all other knowledge, data,
know-how, processes, information, document or materials, owned, developed or
possessed by Employer, whether in tangible or intangible form, the
confidentiality of which Employer takes reasonable measures to protect, and
which pertains in any manner to subjects which include, but are not limited to,
Employer's research operations, customers, identities of individual contacts at
business entities which are customers or prospective customers, preferences,
businesses or habits), business relationships, engineering data or results,
specifications, concepts, methods, processes, rates or schedules, customer or
vendor information, products (including prices, costs, sales or content),
financial information or measures, business methods, future business plans, data
bases, computer programs, designs, models, operating procedures, and knowledge
of the organization.
6.2 Inventions.
6.2.1 Disclosure. Employee shall disclose promptly to Employer
each Invention, whether or not reduced to practice, which is conceived or
learned by Employee (either alone or jointly with others) during the term of his
employment with Employer. Employee shall disclose in confidence to Employer all
patent applications filed by or on behalf of Employee during the term of his
employment and for a period of one year thereafter. Any disclosure of and
Invention, or any patent application, made within one year
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<PAGE> 7
after termination of employment shall be presumed to relate to an Invention made
during Employee's term of employment with Employer, unless Employee clearly
proves otherwise.
6.2.2 Employer Property; Assignment. Except as otherwise
provided in Section 6.2.3, Employee acknowledges and agrees that all Inventions
which are discovered, conceived, developed, made, produced or prepared by
Employee (alone or in conjunction with others) during the Duration of Employee's
employment with Employer shall be the sole property of Employer. Said property
rights of Employer include without limitation all domestic and foreign patent
rights, rights of registration or other protection under the patent and
copyright laws, and all other rights pertaining to the Inventions. Employee
further agrees that all services, products and Inventions that directly or
indirectly result from engagement with Employer shall be deemed "works for hire"
as that term is defined in Title 17 of the United States Codes and accordingly
all rights associated therewith shall vest in Employer. Notwithstanding the
foregoing, Employee hereby assigns to Employer all of Employee's right, title
and interest in any such services, products and Inventions, in the event any
such services, products and Inventions shall be determined not to constitute
"works for hire."
6.2.3 Exclusion Notice. The assignment by Employee of
Inventions under this Agreement does not apply to any Inventions which are owned
or controlled by Employee prior to the commencement of employment of Employee by
Employer (all of which are set forth Exhibit "A" hereto). Additionally, Employee
is not required to assign an idea or invention where the invention or idea meets
all of the following criteria, namely in the invention or idea: (I) was created
or conceived without the use of any of Employer's equipment, supplies,
facilities, or trade secret information, and (ii) was developed entirely on
Employee's own time, and (iii) does not relate to the business of Employer, and
(iv) does not relate to Employer's actual or demonstrably anticipated research
or development, and (v) does not result from any work performed by Employee for
Employer. Employee has reviewed the notification in this Section 6.2.3 and in
Exhibit B ("Limited Exclusion Notification") and agrees that Employee's
signature on the Limited Exclusion Notification acknowledges receipt of the
notification.
6.2.4 Patents and Copyrights: Attorney-in-Fact. Both before
and after termination of this Agreement (and with reasonable compensation paid
by Employer to Employee after termination), Employee agrees to assist the
Employer to apply for, obtain and enforce copyright protection and registration
of, the Inventions described in Section 6.2.2 in any and all countries. To that
end, Employee shall (at Employer's request) without limitation, testify in any
proceeding, and execute any documents and assignments determined to be necessary
or convenient for use in applying for, obtaining, registering and enforcing
patent or copyright protection involving any of the Inventions. Employee hereby
irrevocably appoints Employer, and its duly authorized officers and agents, as
Employee's agent and attorney-in-fact to act for and in behalf of Employee in
filing all patent applications,
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<PAGE> 8
application for copyright protection and registration, amendments, renewals, and
all other appropriate documents in any way related to the Inventions described
in Section 6.2.2.
6.3 Trade Secrets.
6.3.1 Acknowledgment of Proprietary Interest. Employee
recognizes the proprietary interest of Employer in any Trade Secrets of
Employer. Employee acknowledges and agrees that any and all Trade Secrets of
Employer, whether developed by Employee alone or in conjunction with others or
otherwise, shall be and are the property of Employer.
6.3.2 Covenant Not to Divulge Trade Secrets. Employee
acknowledges and agrees that Employer is entitled to prevent the disclosure of
Employer's Trade Secrets of Protected Information. As a portion of the
consideration for the employment of Employee and for the compensation being paid
to Employee by employer, Employee agrees at all times during the term of the
employment by Employer and thereafter to hold in strictest confidence, and not
to use, disclose or allow to be disclosed to any person, form, or corporation,
Employer's Trade Secrets or Protected Information, including Trade Secrets
developed by Employee, other than disclosures to persons who have entered into
confidentiality agreements with Employer without Employer's express prior
written consent.
6.3.3 Confidential Information of Others. Employee represents
and warrants that if Employee has any confidential information belonging to
others, employee will not use or disclose to Employer any such information or
documents. Employee represents that his employment with Employer will not
require him to violate any obligation to or confidence with any other party.
6.4 No Adverse Use. Employee will not at any time during the term
of employment or thereafter use Employer's Trade Secrets, Protected Information
or Inventions in any manner which nay directly or indirectly have an adverse
effect upon Employer's business, nor will Employee perform any acts which would
tend to reduce Employer's proprietary value in Employer's Trade Secrets,
Protected Information or Inventions.
6.5 Remedies Upon Breach. In the event of any breach by Employee
of the provision in this Section 6, Employer shall be entitled, if it so elects,
to institute and prosecute proceedings in any court of competent jurisdiction,
either in law or in equity, to enjoin Employee form violating any of the terms
of this Section 6, to enforce the specific performance by Employee of any of the
terms of this Section 6, and to obtain damages, or any of them, but nothing
herein contained shall be construed to prevent such remedy or combination of
remedies as Employer may elect to invoke. The failure of Employer to promptly
institute legal action upon any breach of this Section 6 shall not constitute a
waiver of that or any other breach hereof.
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7. Covenant Not to Compete. Employee agrees that, during Employee's
employment, Employee will not directly or indirectly compete with Employer in
any way, and that Employee will not act as an officer, director, employee,
consultant, shareholder, lender, or agent of any other entity which engaged in
any business of the same nature as, or in competition with, the business in
which Employer is now engaged or in which Employer becomes engaged during the
term of Employee's employment, or which is involved in science or technology
which is similar to Employer's science or technology. During Employee's
employment, and for a period of one (1) year thereafter, Employee shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of Employer or any subsidiary of Employer to leave the employ of
Employer or such subsidiary, or in any way interfere with the relationship
between the Employer or any subsidiary at any time; (iii) induce or attempt to
induce any customer, supplier, licensee, licenser or other party which has a
contractual relationship with Employer or its subsidiaries or affiliates to
cease doing business with Employer or any such subsidiary (including, without
limitation, making any negative statements or communications about Employer or
its affiliates).
8. Stock Purchase Rights
8.1 Stock Purchase Agreement. Simultaneous with the execution of
this Agreement, Employee and Employer shall enter into a written stock purchase
agreement substantially in the form attached hereto as Exhibit C.
9. General Provisions.
9.1 Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in writing and signed by both
parties hereto. There shall be no implied-in-fact contracts modifying the terms
of this Agreement.
9.2 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the employment of Employee. This
Agreement supersedes all prior agreements, understandings, negotiations and
representation with respect to the employment relationship including, but not
limited to the Memorandum dated February 23, 1995, containing proposed terms and
conditions for hiring Employee.
9.3 Successors and Assigns. The rights and obligations of Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Employer. Employee shall not be entitled to assign any
of Employee's rights or obligations under this Agreement.
9.4 Waiver. Either party's failure to enforce any provision of
this Agreement shall not in any way be construed as a waiver of any such
provision, or prevent that party thereafter from enforcing each and every other
provision of this Agreement.
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9.5 Severable Provisions. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be judicially
unenforceable, in whole or in part, the remaining provisions shall nevertheless
be binding and enforceable.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same Agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.7 Choice of Law. This Agreement shall be governed and construed
in accordance with the laws of California.
9.8 Jurisdiction and Venue. In the event that any legal
proceedings are commenced in any court with respect to any matter arising under
this Agreement, Employer and Employee specifically consent and agree that:
a. the courts of the State of California and/or the United
States Federal Courts located in the State of California shall have exclusive
jurisdiction over each of the parties and such proceedings; and
b. the venue of any such action shall be in San Diego
County, California and/or the United States District Court for the Southern
District of California
10. Employee's Representations. Employee represents and warrants that
Employee (i) is free to enter into this Agreement and to perform each of the
terms and covenants contained herein, (ii) is not restricted or prohibited,
contractually or otherwise, from entering into and performing this Agreement,
and (iii) will not be in violation or breach of any other agreement by reason of
Employee's execution and performance of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates first set forth above.
EMPLOYER:
COMBICHEM, INC., a
California corporation
By: /s/ Robert A. Curtis
-------------------------------------
Robert A. Curtis, President
and CEO
EMPLOYEE:
PETER MEYERS
/s/ Peter L. Myers
- -----------------------------------------
(Signature)
Address: 3 Los Altos Road
-------------------------
Orinda
-------------------------
CA 94563
-------------------------
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EXHIBIT A
LIST OF PRIOR INVENTIONS
(SECTION 6.2.3)
None, other than the following:_________________________________________________
________________________________________________________________________________
________________________________________________________________________________
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EXHIBIT B
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and Employer does not
require you to assign of offer to assign to Employer invention that you
developed entirely on your own time without using Employer's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
(1) Relate at the time of conception or reduction to practice of the
invention to Employer's business, or Employer's actual or demonstrably
anticipated research or development.
(2) Result from any work performed by you for Employer.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered
by a contract between Employer and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notifications.
By: /s/ Peter Myers
-------------------------
-------------------------
Dated: 1st March 1995
-------------------------
Witnessed by:
/s/ Bobbie J. Bosley
- ---------------------------------
Bobbie J. Bosley
- ---------------------------------
(Printed Name of Representative)
Dated: 3-1-95
--------------------------
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EXHIBIT C
STOCK PURCHASE AGREEMENT
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<PAGE> 15
IMMEDIATELY EXERCISABLE
REPURCHASE RIGHT
RIGHT OF FIRST REFUSAL
COMBICHEM, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this ____ day of ________, 19__, by and among
CombiChem, Inc. (the "Corporation"), ______________________, the holder of a
stock option (the "Optionee") under the Corporation's 1995 Stock Option/Stock
Issuance Plan and _________________, the Optionee's spouse.
I. EXERCISE OF OPTION
1.1 EXERCISE. Optionee hereby purchases _________ shares
("Purchased Shares") of the Corporation's common stock ("Common Stock") pursuant
to that certain option ("Option") granted Optionee on ______________ ("Grant
Dates") to purchase up to _________ shares of the Common Stock ("Total
Purchasable Shares") under the Corporation's 1995 Stock Option/Stock Issuance
Plan (the "Plan") at an option price of $_____ per share ("Option Price").
1.2 PAYMENT. Concurrently with the delivery of this Agreement to
the Corporate Secretary of the Corporation, Optionee shall pay the Option Price
for the Purchased Shares in accordance with the provisions of the agreement
between the Corporation and Optionee evidencing the Option (the "Option
Agreement") and shall deliver whatever additional documents may be required by
the Option Agreement as a condition for exercise, together with a duly-executed
blank Assignment Separate from Certificate (in the form attached hereto as
Exhibit I) with respect to the Purchased Shares.
1.3 DELIVERY OF CERTIFICATES. The certificates representing the
Purchased Shares hereunder shall be held in escrow by the Corporate Secretary of
the Corporation in accordance with the provisions of Article VII.
1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation
actually exercises its repurchase right, rights of first refusal or special
purchase right under this Agreement, Optionee (or any successor in interest)
shall have all the rights of a shareholder (including voting and dividend
rights) with respect to the Purchased Shares, including the Purchased Shares
<PAGE> 16
held in escrow under Article VII, subject, however, to the transfer restrictions
of Article IV.
II. SECURITIES LAW COMPLIANCE
2.1 EXEMPTION FROM REGISTRATION. The Purchased Shares have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
and are accordingly being issued to Optionee in reliance upon the exemption from
such registration provided by Rule 701 of the Securities and Exchange Commission
for stock issuances under compensatory benefit plans such as the Plan. Optionee
hereby acknowledges previous receipt of a copy of the documentation for such
Plan in the form of Exhibit C to the Notice of Grant of Stock Option (the "Grant
Notice") accompanying the Option Agreement.
2.2 RESTRICTED SECURITIES.
A. Optionee hereby confirms that Optionee has been informed that
the Purchased Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless the Purchased Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Optionee hereby acknowledges that Optionee is prepared
to hold the Purchased Shares for an indefinite period and that Optionee is aware
that Rule 144 of the Securities and Exchange Commission issued under the 1933
Act is not presently available to exempt the sale of the Purchased Shares from
the registration requirements of the 1933 Act.
B. Upon the expiration of the ninety (90)-day period immediately
following the date on which the Corporation first becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Purchased Shares, to the extent vested under Article V, may
be sold (without registration) pursuant to the applicable requirements of Rule
144. If Optionee is at the time of such sale an affiliate of the Corporation for
purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the two (2)-year holding period requirement
of the Rule will not be applicable. If Optionee is not at the time of the sale
an affiliate of the Corporation nor was such an affiliate during the preceding
three (3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Purchased Shares held for less than
three (3) years following payment in cash of the Option Price therefor) will be
applicable to the sale.
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<PAGE> 17
C. Should the Corporation not become subject to the reporting
requirements of the Exchange Act, then Optionee may, provided he/she is not at
the time an affiliate of the Corporation (nor was such an affiliate during the
preceding three (3) months), sell the Purchased Shares (without registration)
pursuant to paragraph (k) of Rule 144 after the Purchased Shares have been held
for a period of three (3) years following the payment in cash of the Option
Price for such shares.
2.3 DISPOSITION OF SHARES. Optionee hereby agrees that Optionee
shall make no disposition of the Purchased Shares (other than a permitted
transfer under paragraph 4.1) unless and until there is compliance with all of
the following requirements:
(a) Optionee shall have notified the Corporation of the
proposed disposition and provided a written summary of the terms and
conditions of the proposed disposition.
(b) Optionee shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(c) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that (i) the proposed disposition does not require registration of the
Purchased Shares under the 1933 Act or (ii) all appropriate action
necessary for compliance with the registration requirements of the 1933
Act or of any exemption from registration available under the 1933 Act
(including Rule 144) has been taken.
(d) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that the proposed disposition will not result in the contravention of any
transfer restrictions applicable to the Purchased Shares pursuant to the
provisions of the Commissioner Rules identified in paragraph 2.5.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Article II nor (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee to
whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.4 RESTRICTIVE LEGENDS. In order to reflect the restrictions
on disposition of the Purchased Shares, the stock
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<PAGE> 18
certificates for the Purchased Shares will be endorsed with restrictive legends,
including one or more of the following legends:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
(ii) "The shares represented by this certificate are unvested
and accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated February 24, 1997 between the Corporation and the registered holder of the
shares (or the predecessor in interest to the shares). Such agreement grants
certain repurchase rights and rights of first refusal to the Corporation (or its
assignees) upon the sale, assignment, transfer, encumbrance or other disposition
of the Corporation's shares or upon termination of service with the Corporation.
The Corporation will upon written request furnish a copy of such agreement to
the holder hereof without charge."
III. SPECIAL TAX ELECTION
3.1 SECTION 83(b) ELECTION APPLICABLE TO THE EXERCISE OF A
NON-STATUTORY STOCK OPTION. If the Purchased Shares are acquired hereunder
pursuant to the exercise of a non-statutory stock option, as specified in the
Grant Notice, then the Optionee understands that under Section 83 of the
Internal Revenue Code of 1986, as amended (the "Code"), the excess of the fair
market value of the Purchased Shares on the date any forfeiture restrictions
applicable to such shares lapse over the Option Price paid for such shares will
be reportable as ordinary income on such lapse date. For this purpose, the term
"forfeiture restrictions" includes the right of the Corporation to repurchase
the Purchased Shares pursuant to the Repurchase Right provided under Article V
of this Agreement. Optionee understands that he/she may elect under Section
83(b) of the Code to be taxed at the time the Purchased Shares are acquired
hereunder, rather than when and as such Purchased Shares cease to be subject to
such forfeiture restrictions. Such election must be filed with the Internal
Revenue Service within thirty (30) days after the date of this Agreement. Even
if the fair market value of the Purchased Shares at the date of this Agreement
equals the Option Price paid (and thus no tax is payable), the election must be
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made to avoid adverse tax consequences in the future. THE FORM FOR MAKING THIS
ELECTION IS ATTACHED AS EXHIBIT II HERETO. OPTIONEE UNDERSTANDS THAT FAILURE TO
MAKE THIS FILING WITHIN THE THIRTY (30)-DAY PERIOD WILL RESULT IN THE
RECOGNITION OF ORDINARY INCOME BY THE OPTIONEE AS THE FORFEITURE RESTRICTIONS
LAPSE.
3.2 CONDITIONAL SECTION 83(b) ELECTION APPLICABLE TO THE EXERCISE
OF AN INCENTIVE STOCK OPTION. If the Purchased Shares are acquired hereunder
pursuant to the exercise of an incentive stock option under the Federal tax
laws, as specified in the Grant Notice, then the following tax principles shall
be applicable to the Purchased Shares:
A. For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
B. The excess of (i) the fair market value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over (ii)
the Option Price paid for the Purchased Shares will be includible in the
Optionee's taxable income for alternative minimum tax purposes.
C. If the Optionee makes a disqualifying disposition of the
Purchased Shares, then the Optionee will recognize ordinary income in the
year of such disposition equal in amount to the excess of (i) the fair
market value of the Purchased Shares on the date the Option is exercised
or (if later) on the date any forfeiture restrictions applicable to the
Purchased Shares lapse over (ii) the Option Price paid for the Purchased
Shares. Any additional gain recognized upon the disqualifying disposition
will be either short-term or long-term capital gain depending upon the
period for which the Purchased Shares are held prior to the disposition.
D. For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right provided under Article V
of this Agreement. The term "disqualifying disposition" means any sale or
other disposition(1) of the
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(1) Generally, a disposition of shares purchased under an incentive stock
option includes any transfer of legal title, including a transfer by sale,
exchange or gift, but does not include a transfer to the Optionee's spouse, a
transfer into
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Purchased Shares within two (2) years after the Grant Date or within one
(1) year after the execution date of this Agreement.
E. In the absence of final Treasury Regulations relating to
incentive stock options, it is not certain whether the Optionee may, in
connection with the exercise of the Option for any Purchased Shares at the
time subject to forfeiture restrictions, file a protective election under
Section 83(b) of the Code which would limit (I) the Optionee's alternative
minimum taxable income upon exercise and (II) the Optionee's ordinary
income upon a disqualifying disposition, to the excess of (i) the fair
market value of the Purchased Shares on the date the Option is exercised
over (ii) the Option Price paid for the Purchased Shares. THE APPROPRIATE
FORM FOR MAKING SUCH A PROTECTIVE ELECTION IS ATTACHED AS EXHIBIT II TO
THIS AGREEMENT AND MUST BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN
THIRTY (30) DAYS AFTER THE DATE OF THIS AGREEMENT. HOWEVER, SUCH ELECTION
IF PROPERLY FILED WILL ONLY BE ALLOWED TO THE EXTENT THE FINAL TREASURY
REGULATIONS PERMIT SUCH A PROTECTIVE ELECTION.
3.3 OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE
RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER
SECTION 83(B), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON HIS/HER BEHALF. This filing should be made by registered
or certified mail, return receipt requested, and Optionee must retain two (2)
copies of the completed form for filing with his or her State and Federal tax
returns for the current tax year and an additional copy for his or her records.
IV. TRANSFER RESTRICTIONS
4.1 RESTRICTION ON TRANSFER. Optionee shall not transfer, assign,
encumber or otherwise dispose of any of the Purchased Shares which are subject
to the Corporation's Repurchase Right under Article V. In addition, Purchased
Shares which are released from the Repurchase Right shall not be transferred,
assigned, encumbered or otherwise made the subject of disposition in
contravention of the Corporation's First Refusal Right under Article VI. Such
restrictions on transfer, however, shall not be
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joint ownership with right of survivorship if Optionee remains one
of the joint owners, a pledge, a transfer by bequest or inheritance or certain
tax free exchanges permitted under the Code.
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applicable to (i) a gratuitous transfer of the Purchased Shares made to the
Optionee's spouse or issue, including adopted children, or to a trust for the
exclusive benefit of the Optionee or the Optionee's spouse or issue, provided
and only if the Optionee obtains the Corporation's prior written consent to such
transfer, (ii) a transfer of title to the Purchased Shares effected pursuant to
the Optionee's will or the laws of intestate succession or (iii) a transfer to
the Corporation in pledge as security for any purchase-money indebtedness
incurred by the Optionee in connection with the acquisition of the Purchased
Shares.
4.2 TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of one of the
permitted transfers specified in paragraph 4.1 must, as a condition precedent to
the validity of such transfer, acknowledge in writing to the Corporation that
such person is bound by the provisions of this Agreement and that the
transferred shares are subject to (i) both the Corporation's Repurchase Right
and the Corporation's First Refusal Right granted hereunder and (ii) the market
stand-off provisions of paragraph 4.4, to the same extent such shares would be
so subject if retained by the Optionee.
4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI and
VII of this Agreement, the term "Owner" shall include the Optionee and all
subsequent holders of the Purchased Shares who derive their chain of ownership
through a permitted transfer from the Optionee in accordance with paragraph 4.1.
4.4 MARKET STAND-OFF PROVISIONS.
A. In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such limitations shall be in effect for such
period of time from and after the effective date of such registration statement
as may be requested by the Corporation or such underwriters; provided, however,
that in no event shall such period exceed one hundred-eighty (180) days. The
limitations of this paragraph 4.4 shall remain in effect for the two-year period
immediately following the effective date of the Corporation's initial public
offering and shall thereafter terminate and cease to have any force or effect.
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B. Owner shall be subject to the market stand-off provisions of
this paragraph 4.4 provided and only if the officers and directors of the
Corporation are also subject to similar arrangements.
C. In the event of any stock dividend, stock split,
recapitalization or other change affecting the Corporation's outstanding Common
Stock effected as a class without receipt of consideration, then any new,
substituted or additional securities distributed with respect to the Purchased
Shares shall be immediately subject to the provisions of this paragraph 4.4, to
the same extent the Purchased Shares are at such time covered by such
provisions.
D. In order to enforce the limitations of this paragraph 4.4, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
V. REPURCHASE RIGHT
5.1 GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date the Optionee ceases for any reason to remain in Service or
(if later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Option Price all or (at the discretion of the
Corporation and with the consent of the Optionee) any portion of the Purchased
Shares in which the Optionee has not acquired a vested interest in accordance
with the vesting provisions of paragraph 5.3 (such shares to be hereinafter
called the "Unvested Shares"). For purposes of this Agreement, the Optionee
shall be deemed to remain in Service for so long as the Optionee continues to
render periodic services to the Corporation or any parent or subsidiary
corporation, whether as an employee, a non-employee member of the board of
directors, or an independent contractor or consultant.
5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one or
more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be
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properly endorsed for transfer. The Corporation shall, concurrently with the
receipt of such stock certificates (either from escrow in accordance with
paragraph 7.3 or from Owner as herein provided), pay to Owner in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness), an
amount equal to the Option Price previously paid for the Unvested Shares which
are to be repurchased.
5.3 TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under paragraph 5.2. In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to any and all Purchased
Shares in which the Optionee vests in accordance with the vesting schedule
specified in the Grant Notice. All Purchased Shares as to which the Repurchase
Right lapses shall, however, continue to be subject to (i) the First Refusal
Right of the Corporation and its assignees under Article VI, (ii) the market
stand-off provisions of paragraph 4.4 and (iii) the Special Purchase Right under
Article VIII.
5.4 AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that the Optionee is a party to one or more other
Stock Purchase Agreements ("Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which the Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which the Optionee would otherwise at the time
be vested, in accordance with the vesting provisions of paragraph 5.3, had all
the Purchased Shares been acquired exclusively under this Agreement.
5.5 FRACTIONAL SHARES. No fractional shares shall be repurchased
by the Corporation. Accordingly, should the Repurchase Right extend to a
fractional share (in accordance with the vesting provisions of paragraph 5.3) at
the time the Optionee ceases Service, then such fractional share shall be added
to any fractional share in which the Optionee is at such time vested in order to
make one whole vested share no longer subject to the Repurchase Right.
5.6 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of
any stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased
Shares shall be immediately subject to
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<PAGE> 24
the Repurchase Right, but only to the extent the Purchased Shares are at the
time covered by such right. Appropriate adjustments to reflect the distribution
of such securities or property shall be made to the number of Purchased Shares
and Total Purchasable Shares hereunder and to the price per share to be paid
upon the exercise of the Repurchase Right in order to reflect the effect of any
such transaction upon the Corporation's capital structure; provided, however,
that the aggregate purchase price shall remain the same.
5.7 CORPORATE TRANSACTION.
A. Except to the extent the Repurchase Right is to be assigned to
the successor corporation (or its parent company), immediately prior to the
consummation of any of the following shareholder-approved transactions (a
"Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation,
the Corporation may exercise the Repurchase Right with respect to the then
Unvested Shares. The Repurchase Right shall automatically lapse with respect to
all Unvested Shares not repurchased hereunder.
B. To the extent the Repurchase Right remains in effect following
such Corporate Transaction, it shall apply to the new capital stock or other
property (including cash) received in exchange for the Shares in consummation of
the Corporate Transaction, but only to the extent the Shares are at the time
covered by such right. Appropriate adjustments shall be made to the price per
share payable upon exercise of the Repurchase Right to reflect the effect of the
Corporate Transaction upon the Corporation's capital structure; provided,
however, that the aggregate Purchase Price shall remain the same.
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<PAGE> 25
VI. RIGHT OF FIRST REFUSAL
6.1 GRANT. The Corporation is hereby granted rights of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which the Optionee has vested in accordance
with the vesting provisions of Article V. For purposes of this Article VI, the
term "transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Purchased Shares intended to be made by the Owner,
but shall not include any of the permitted transfers under paragraph 4.1.
6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires
to accept a bona fide third-party offer for the transfer of any or all of the
Purchased Shares (the shares subject to such offer to be hereinafter called the
"Target Shares"), Owner shall promptly (i) deliver to the Corporate Secretary of
the Corporation written notice (the "Disposition Notice") of the terms and
conditions of the offer, including the purchase price and the identity of the
third-party offeror, and (ii) provide satisfactory proof that the disposition of
the Target Shares to such third-party offeror would not be in contravention of
the provisions set forth in Articles II and IV of this Agreement.
6.3 EXERCISE OF RIGHT. The Corporation shall, for a period of
forty-five (45) days following receipt of the Disposition Notice, have the right
to repurchase any or all of the Target Shares specified in the Disposition
Notice upon the same terms and conditions specified therein or upon terms and
conditions which do not materially vary from those specified therein. Such right
shall be exercisable by delivery of written notice (the "Exercise Notice") to
Owner prior to the expiration of the forty-five (45)-day exercise period. If
such right is exercised with respect to all the Target Shares specified in the
Disposition Notice, then the Corporation (or its assignees) shall effect the
repurchase of the Target Shares, including payment of the purchase price, not
more than ten (10) business days after delivery of the Exercise Notice; and at
such time Owner shall deliver to the Corporation the certificates representing
the Target Shares to be repurchased, each certificate to be properly endorsed
for transfer. To the extent any of the Target Shares are at the time held in
escrow under Article VII, the certificates for such shares shall automatically
be released from escrow and delivered to the Corporation for purchase. Should
the purchase price specified in the Disposition Notice be payable in property
other than cash or evidences of indebtedness, the Corporation (or its assignees)
shall have the right to pay the purchase price in the form of cash equal in
amount to the value of such property. If the Owner and the Corporation (or its
assignees) cannot agree on such cash value within ten (10) days
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after the Corporation's receipt of the Disposition Notice, the valuation shall
be made by an appraiser of recognized standing selected by the Owner and the
Corporation (or its assignees) or, if they cannot agree on an appraiser within
twenty (20) days after the Corporation's receipt of the Disposition Notice, each
shall select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of such value. The cost of such appraisal shall be shared equally
by the Owner and the Corporation. The closing shall then be held on the later of
(i) the tenth business day following delivery of the Exercise Notice or (ii) the
tenth business day after such cash valuation shall have been made.
6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to Owner within forty-five (45) days following the date of the
Corporation's receipt of the Disposition Notice, Owner shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; provided,
however, that any such sale or disposition must not be effected in contravention
of the provisions of Article II of this Agreement. To the extent any of the
Target Shares are at the time held in escrow under Article VII, the certificates
for such shares shall automatically be released from escrow and surrendered to
the Owner. The third-party offeror shall acquire the Target Shares free and
clear of the Corporation's Repurchase Right under Article V and the
Corporation's First Refusal Right hereunder, but the acquired shares shall
remain subject to (i) the securities law restrictions of paragraph 2.2(a) and
(ii) the market stand-off provisions of paragraph 4.4. In the event Owner does
not effect such sale or disposition of the Target Shares within the specified
thirty (30)-day period, the Corporation's First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with paragraph 6.7.
6.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation (or
its assignees) makes a timely exercise of the First Refusal Right with respect
to a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Corporation delivered within thirty (30) days after the date of the Disposition
Notice, to effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in
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the Disposition Notice, but in full compliance with the requirements of
paragraph 6.4, as if the Corporation did not exercise the First Refusal
Right hereunder; or
(ii) sale to the Corporation (or its assignees) of the
portion of the Target Shares which the Corporation (or its assignees) has
elected to purchase, such sale to be effected in substantial conformity
with the provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (i) above.
6.6 RECAPITALIZATION/MERGER.
(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Purchased Shares shall be
immediately subject to the Corporation's First Refusal Right hereunder, but only
to the extent the Purchased Shares are at the time covered by such right.
(b) In the event of any of the following transactions:
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to person or persons other
than those who held such securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the State
in which the Corporation is incorporated, or to create a holding company
structure,
the Corporation's First Refusal Right shall remain in full
force and effect and shall apply to the new capital stock or other property
received in exchange for the Purchased Shares
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in consummation of the transaction but only to the extent the Purchased Shares
are at the time covered by such right.
6.7 LAPSE. The First Refusal Right under this Article VI shall
lapse and cease to have effect upon the earliest to occur of (i) the first date
on which shares of the Corporation's Common Stock are held of record by more
than five hundred (500) persons, (ii) a determination is made by the
Corporation's Board of Directors that a public market exists for the outstanding
shares of the Corporation's Common Stock, or (iii) a firm commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Corporation's Common
Stock in the aggregate amount of at least $5,000,000. However, the market
stand-off provisions of paragraph 4.4 shall continue to remain in full force and
effect following the lapse of the First Refusal Right hereunder.
VII. ESCROW
7.1 DEPOSIT. Upon issuance, the certificates for any Unvested
Shares purchased hereunder shall be deposited in escrow with the Corporate
Secretary of the Corporation to be held in accordance with the provisions of
this Article VII. Each deposited certificate shall be accompanied by a
duly-executed Assignment Separate from Certificate in the form of Exhibit I. The
deposited certificates, together with any other assets or securities from time
to time deposited with the Corporate Secretary pursuant to the requirements of
this Agreement, shall remain in escrow until such time or times as the
certificates (or other assets and securities) are to be released or otherwise
surrendered for cancellation in accordance with paragraph 7.3. Upon delivery of
the certificates (or other assets and securities) to the Corporate Secretary of
the Corporation, the Owner shall be issued an instrument of deposit
acknowledging the number of Unvested Shares (or other assets and securities)
delivered in escrow.
7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any stock
dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Unvested Shares shall be immediately
delivered to the Corporate Secretary to be held in escrow under this Article
VII, but only to the extent the Unvested Shares are at the time subject to the
escrow requirements of paragraph 7.1.
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<PAGE> 29
7.3 RELEASE/SURRENDER. The Unvested Shares, together with any
other assets or securities held in escrow hereunder, shall be subject to the
following terms and conditions relating to their release from escrow or their
surrender to the Corporation for repurchase and cancellation:
(i) Should the Corporation (or its assignees) elect to
exercise the Repurchase Right under Article V with respect to any Unvested
Shares, then the escrowed certificates for such Unvested Shares (together
with any other assets or securities issued with respect thereto) shall be
delivered to the Corporation concurrently with the payment to the Owner,
in cash or cash equivalent (including the cancellation of any
purchase-money indebtedness), of an amount equal to the aggregate Option
Price for such Unvested Shares, and the Owner shall cease to have any
further rights or claims with respect to such Unvested Shares (or other
assets or securities attributable to such Unvested Shares).
(ii) Should the Corporation (or its assignees) elect to
exercise its First Refusal Right under Article VI with respect to any
vested Target Shares held at the time in escrow hereunder, then the
escrowed certificates for such Target Shares (together with any other
assets or securities attributable thereto) shall, concurrently with the
payment of the paragraph 6.3 purchase price for such Target Shares to the
Owner, be surrendered to the Corporation, and the Owner shall cease to
have any further rights or claims with respect to such Target Shares (or
other assets or securities).
(iii) Should the Corporation (or its assignees) elect not to
exercise its First Refusal Right under Article VI with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with provisions of paragraph 6.4.
(iv) As the interest of the Optionee in the Unvested Shares
(or any other assets or securities attributable thereto) vests in
accordance with the provisions of Article V, the certificates for such
vested shares (as well as all other vested assets and securities) shall be
released from escrow and delivered to the Owner in accordance with the
following schedule:
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a. The initial release of vested shares (or other
vested assets and securities) from escrow shall be effected within
thirty (30) days following the expiration of the initial twelve
(12)-month period measured from the Grant Date.
b. Subsequent releases of vested shares (or other
vested assets and securities) from escrow shall be effected at
semi-annual intervals thereafter, with the first such semi-annual
release to occur eighteen (18) months after the Grant Date.
c. Upon the Optionee's cessation of Service, any
escrowed Purchased Shares (or other assets or securities) in which
the Optionee is at the time vested shall be promptly released from
escrow.
d. Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article V, any Purchased Shares (or other assets or securities) at
the time held in escrow hereunder shall promptly be released to the
Owner as fully-vested shares or other property.
(v) All Purchased Shares (or other assets or securities)
released from escrow in accordance with the provisions of subparagraph
(iv) above shall nevertheless remain subject to (I) the Corporation's
First Refusal Right under Article VI until such right lapses pursuant to
paragraph 6.7, (II) the market stand-off provisions of paragraph 4.4 until
such provisions terminate in accordance therewith and (III) the Special
Purchase Right under Article VIII.
VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION
8.1 GRANT. In connection with the dissolution of the Optionee's
marriage or the legal separation of the Optionee and the Optionee's spouse, the
Corporation shall have the right (the "Special Purchase Right"), exercisable at
any time during the thirty (30)-day period following the Corporation's receipt
of the required Dissolution Notice under paragraph 8.2, to purchase from the
Optionee's spouse, in accordance with the provisions of paragraph 8.3, all or
any portion of the Purchased Shares which would otherwise be awarded to such
spouse in settlement of any
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community property or other marital property rights such spouse may have in such
shares.
8.2 NOTICE OF DECREE OR AGREEMENT. The Optionee shall promptly
provide the Secretary of the Corporation with written notice (the "Dissolution
Notice") of (i) the entry of any judicial decree or order resolving the property
rights of the Optionee and the Optionee's spouse in connection with their
marital dissolution or legal separation or (ii) the execution of any contract or
agreement relating to the distribution or division of such property rights. The
Dissolution Notice shall be accompanied by a copy of the actual decree of
dissolution or settlement agreement between the Optionee and the Optionee's
spouse which provides for the award to the spouse of one or more Purchased
Shares in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase Right
shall be exercisable by delivery of written notice (the "Purchase Notice") to
the Optionee and the Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date such
purchase is to be effected (such date to be not less than five (5) business
days, nor more than ten (10) business days, after the date of the Purchase
Notice), and the fair market value to be paid for such Purchased Shares. The
Optionee (or the Optionee's spouse, to the extent such spouse has physical
possession of the Purchased Shares) shall, prior to the close of business on the
date specified for the purchase, deliver to the Corporate Secretary of the
Corporation the certificates representing the shares to be purchased, each
certificate to be properly endorsed for transfer. To the extent any of the
shares to be purchased by the Corporation are at the time held in escrow under
Article VII, the certificates for such shares shall be promptly delivered out of
escrow to the Corporation. The Corporation shall, concurrently with the receipt
of the stock certificates, pay to the Optionee's spouse (in cash or cash
equivalents) an amount equal to the fair market value specified for such shares
in the Purchase Notice.
If the Optionee's spouse does not agree with the fair market value
specified for the shares in the Purchase Notice, then the spouse shall promptly
notify the Corporation in writing of such disagreement and the fair market value
of such shares shall thereupon be determined by an appraiser of recognized
standing selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two appraisers shall
designate a third appraiser of recognized standing whose appraisal shall be
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determinative of such value. The cost of the appraisal shall be shared equally
by the Corporation and the Optionee's spouse. The closing shall then be held on
the fifth business day following the completion of such appraisal; provided,
however, that if the appraised value is more than fifteen percent (15%) greater
than the fair market value specified for the shares in the Purchase Notice, the
Corporation shall have the right, exercisable prior to the expiration of such
five (5)-business-day period, to rescind the exercise of the Special Purchase
Right and thereby revoke its election to purchase the shares awarded to the
spouse.
8.4 LAPSE. The Special Purchase Right under this Article VIII
shall lapse and cease to have effect upon the earlier to occur of (i) the first
date on which the First Refusal Right under Article VI lapses or (ii) the
expiration of the thirty (30)-day exercise period specified in paragraph 8.3, to
the extent the Special Purchase Right is not timely exercised in accordance with
such paragraph.
IX. GENERAL PROVISIONS
9.1 ASSIGNMENT. The Corporation may assign its Repurchase Right
under Article V, its First Refusal Right under Article VI and/or its Special
Purchase Right under Article VIII to any person or entity selected by the
Corporation's Board of Directors, including (without limitation) one or more
shareholders of the Corporation.
If the assignee of the Repurchase Right is other than a one hundred
percent (100%) owned subsidiary corporation of the Corporation or the parent
corporation owning one hundred percent (100%) of the Corporation, then such
assignee must make a cash payment to the Corporation, upon the assignment of the
Repurchase Right, in an amount equal to the excess (if any) of (i) the fair
market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Unvested Shares thereunder.
9.2 DEFINITIONS. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered to be a parent corporation of the Corporation, provided each
such 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.
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(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a subsidiary of the Corporation, provided each such
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.
9.3 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon the Optionee any right to continue in the
Service of the Corporation (or any parent or subsidiary corporation of the
Corporation employing or retaining Optionee) 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 corporation of the Corporation employing or
retaining Optionee) or the Optionee, which rights are hereby expressly reserved
by each, to terminate the Optionee's Service at any time for any reason
whatsoever, with or without cause.
9.4 NOTICES. Any notice required in connection with (i) the
Repurchase Right, the Special Purchase Right or the First Refusal Right or (ii)
the disposition of any Purchased Shares covered thereby shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit in
the United States mail, registered or certified, postage prepaid and addressed
to the party entitled to such notice at the address indicated below such party's
signature line on this Agreement or at such other address as such party may
designate by ten (10) days advance written notice under this paragraph 9.4 to
all other parties to this Agreement.
9.5 NO WAIVER. The failure of the Corporation (or its assignees)
in any instance to exercise the Repurchase Right granted under Article V, or the
failure of the Corporation (or its assignees) in any instance to exercise the
First Refusal Right granted under Article VI, or the failure of the Corporation
(or its assignees) in any instance to exercise the Special Purchase Right
granted under Article VIII shall not constitute a waiver of any other repurchase
rights and/or rights of first refusal that may subsequently arise under the
provisions of this Agreement or any other agreement between the Corporation and
the Optionee or the Optionee's spouse. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
9.6 CANCELLATION OF SHARES. If the Corporation (or its assignees)
shall make available, at the time and place and in
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the amount and form provided in this Agreement, the consideration for the
Purchased Shares to be repurchased in accordance with the provisions of this
Agreement, then from and after such time, the person from whom such shares are
to be repurchased shall no longer have any rights as a holder of such shares
(other than the right to receive payment of such consideration in accordance
with this Agreement), and such shares shall be deemed purchased in accordance
with the applicable provisions hereof and the Corporation (or its assignees)
shall be deemed the owner and holder of such shares, whether or not the
certificates therefor have been delivered as required by this Agreement.
X. MISCELLANEOUS PROVISIONS
10.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
10.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict-of-laws rules.
10.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
10.6 POWER OF ATTORNEY. Optionee's spouse hereby appoints Optionee
his or her true and lawful attorney in fact,
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for him or her and in his or her name, place and stead, and for his or her use
and benefit, to agree to any amendment or modification of this Agreement and to
execute such further instruments and take such further actions as may reasonably
be necessary to carry out the intent of this Agreement. Optionee's spouse
further gives and grants unto Optionee as his or her attorney in fact full power
and authority to do and perform every act necessary and proper to be done in the
exercise of any of the foregoing powers as fully as he or she might or could do
if personally present, with full power of substitution and revocation, hereby
ratifying and confirming all that Optionee shall lawfully do and cause to be
done by virtue of this power of attorney.
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<PAGE> 36
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
CombiChem, Inc.
By: _____________________________________
Title: __________________________________
Address: _________________________________________
_________________________________________
_________________________________________
Optionee *
Address: _________________________________________
_________________________________________
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting the Optionee the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms and provisions of such Agreement, including
(specifically) the right of the Corporation (or its assignees) to purchase any
and all interest or right the undersigned may otherwise have in such shares
pursuant to community property laws or other marital property rights.
-----------------------------------------
Optionee's Spouse
Address: _________________________________________
_________________________________________
- ----------
* I have executed the Section 83(b) election that was attached hereto as an
Exhibit. As set forth in Article III, I understand that I, and not the
Corporation, will be responsible for completing the form and filing the election
with the appropriate office of the Federal and State tax authorities and that if
such filing is not completed within thirty (30) days after the date of this
Agreement, I will not be entitled to the tax benefits provided by Section 83(b).
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<PAGE> 37
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED __________________________________ hereby
sell(s), assign(s) and transfer(s) unto CombiChem, Inc. (the
"Corporation"),__________________________________ (_________) shares of the
Common Stock of the Corporation standing in his\her name on the books of the
Corporation represented by Certificate No. ______________ and do hereby
irrevocably constitute and appoint ___________________________________ as
Attorney to transfer the said stock on the books of the Corporation with full
power of substitution in the premises.
Dated: ______________
Signature _______________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Corporation to exercise its
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Optionee.
<PAGE> 38
REPURCHASE RIGHTS
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
___________ shares of the common stock of CombiChem, Inc.
(3) The property was issued on __________________, 19___.
(4) The taxable year in which the election is being made is the calendar year
19___.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if
for any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of annual and monthly
installments over a four year period ending on ____________, 19___.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $___________ per share.
(7) The amount paid for such property is $____________ per share.
(8) A copy of this statement was furnished to CombiChem, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed as of: _______________________.
- -------------------------------- --------------------------------------
Spouse (if any) Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.
EXHIBIT II-1
<PAGE> 39
SPECIAL PROTECTIVE ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL
REVENUE CODE WITH RESPECT TO PROPERTY ACQUIRED UPON EXERCISE OF AN
INCENTIVE STOCK OPTION
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Code. Accordingly, it is the intent of the
Taxpayer to utilize this election to achieve the following tax results:
1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to the
Taxpayer exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares. The election is to be effective to the
full extent permitted under the Internal Revenue Code.
2. Section 421(a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.
This form should be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.
NOTE: PAGE 2 SHOULD BE ATTACHED ONLY IF YOU ARE EXERCISING AN INCENTIVE
STOCK OPTION.
<PAGE> 1
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of January
1, 1996, by and between CombiChem, Inc., a California corporation ("Employer")
and John Saunders, Ph.D. ("Employee").
NOW, THEREFORE, the parties agree as follows:
1. Employment. Employer hereby engages Employee, and Employee hereby
accepts such engagement, upon the terms and conditions set forth herein.
2. Duties. During the term of this Agreement, Employee shall be
employed as the Employer's Vice President of Chemistry reporting to Employer's
Chief Operating Officer. Employee shall faithfully and diligently perform the
duties customarily performed by persons in the position or positions for which
Employee is engaged together with such other reasonable and appropriate duties
as Employer shall designate from time to time. Employee shall devote Employee's
full business time and effort to the rendition of such services and to the
performance of such duties. As a full-time employee of Employer, Employee shall
not be entitled to provide consulting services or other businesses or scientific
services to any other party, without the prior written consent of Employer.
3. Compensation.
3.1 Base Salary. During the term of this Agreement, as
compensation for the proper and satisfactory performance of all duties to be
performed by Employee hereunder, Employer shall pay to Employee an annual salary
of One Hundred and Forty-Five Thousand Dollars ($145,000) payable in accordance
with Employee's standard payroll practices, less required deductions for state
and federal withholding tax, Social Security and all other employee taxes and
payroll deductions. Employee's base salary shall be reviewed annually by the
President & Chief Executive Officer and the Chief Operating Officer and may be
increased or decreased in the sole discretion of such individuals.
3.2 Bonus. At the beginning of each fiscal year, Employer and
Employee shall reach mutually agreed upon scientific and business objectives for
Employer for its upcoming fiscal year which shall be set forth in writing and
approved by the Board. At the end of each such fiscal year, the Board shall
determine, in its reasonable discretion, the size and amount of Employee's
performance bonus, if any, up to a maximum of twenty percent (20%) of Employee's
base salary during the prior fiscal year (the "Annual Performance Bonus"). The
Annual Performance Bonus shall be paid to Employee within sixty (60) days
following Employer's fiscal year end. The first Annual Performance Bonus shall
be (i) based on Employer's 1996 fiscal
<PAGE> 2
year achievements; (ii) paid to Employee by March 1, 1997; (iii) guaranteed to
be not less than Fourteen Thousand Five Hundred Dollars ($14,500); provided that
employee's employment has continued through the end of 1996. No other Annual
Performance bonus shall have any guaranteed minimum payment.
4. Term of Employment.
4.1 Period of Employment. The Employee's period of employment by
Employer pursuant to this Agreement shall commence on January 1, 1996
("Commencement Date") and end upon the date the employment relationship is
terminated pursuant to Sections 4.2 or 4.3 hereunder (the "Period of
Employment").
4.2 Termination at Will. Although Employer and Employee anticipate
a long and mutually rewarding employment relationship, either party may
terminate this Agreement, without cause, upon fourteen (14) days prior written
notice delivered to the other party. It is expressly understood and agreed that
the employment is not for any specified term, and without any agreement for
employment, for so long as Employee performs satisfactorily.
4.3 Termination for Cause. Employer may immediately terminate this
employment relationship "for cause" upon written notice to Employee. For the
purposes herein, "for cause" shall be limited to the following: (i) Employee's
intentional violation of any rule or policy of Employer or its subsidiaries (a
"Violation") which, after written notice of a Violation, Employee fails to
correct within twenty (20) days of receipt of such notice from the Board; (ii)
any material failure by Employee to comply with any reasonable directive of the
Board which, after receiving written notice to do so, Employee fails to comply
within twenty (20) days of receipt of such notice from the Board; (iii)
Employee's willful misconduct concerning any material responsibility reasonably
assigned to Employee; (iv) without obtaining the prior consent of the Board,
Employee's active and intentional performance of services for any other
corporation or person which competes with Employer or its subsidiaries while he
is employed by Employer or its subsidiaries; (v) the Board reasonably determines
that Employee has stolen or embezzled either funds or property of Employer; (vi)
Employee's conviction by a court of competent jurisdiction of a felony (other
than a traffic or moving violation) involving moral turpitude or dishonesty;
(vii) Employee's intentional or grossly negligent conduct or violation of law
which results in either an improper personal benefit to Employee or a material
injury to Employer; (viii) Employee's failure to perform a material duty given
to him by the company's Chief Operating Officer or under this Agreement if such
failure was continued for thirty (30) days after Employee has been notified in
writing by the Company of his failure to perform; or (ix) the death or
disability of Employee.
4.4 Obligations Upon Termination.
4.4.1 Survival of Obligations. The parties' obligations under
Section 4.4.2, 6, 7, 9.7 and 9.8, shall survive the termination of this
Agreement.
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<PAGE> 3
4.4.2 Return of Materials at Termination. Upon termination of
the Period of Employment, the Employee will promptly deliver to Employer all
materials, property, documents, data and other information belonging to Employer
or containing Employer's Trade Secrets or other Protected Information (each as
defined herein). The Employee shall not take any materials, property, documents
or other information, or any reproduction or excerpt thereof, belonging to
Employer or containing any Trade Secrets or other Protected Information of
Employer.
4.4.3 Resignation. Upon termination of the Period of
Employment, the Employee shall be deemed to have resigned from any and all
offices then held with the Employer.
4.5 Compensation to Employee On Termination by Employer. In the
event that Employer terminates Employee pursuant to Paragraph 4.2, Employee
shall be entitled to (1) receive an aggregate severance benefit of nine months
of Employee's then current base salary (Section 3.1) and benefits (Section 5)
which shall be paid by Employer to employee in nine (9) equal monthly
installments until fully paid or until Employee has secured full-time employment
and (2) a nine (9) month credit towards any vesting schedule or vesting
requirements contained in any stock option or stock purchase agreements then
existing between the Employee and Employer. In the event the Employee elects to
receive and does receive any of the benefits set for in this Section 4.5,
Employee agrees that such payments shall constitute Employee's sole and
exclusive rights and entitlements in connection with Employee's employment by
Employer, the termination of such employment and any and all matters related to
or arising in connection with such employment, and agrees that his acceptance of
any such payments shall release Employee and any and all affiliated persons and
entities (including all directors, officers, employees and agents) from any
claims that Employee may otherwise have or assert in connection with such
matters. If Employee desires to pursue or enforce any such rights, entitlements
or remedies that would otherwise be waived and released, then Employee shall
refuse any payments provided for pursuant to this Section 4.5. If Employee
accepts any such severance payment or payments, he shall be deemed to have
agreed to the foregoing exclusivity of rights and waiver of claims.
5. Benefits
5.1 Health Insurance, Vacation and Sick Leave. Employee shall be
entitled to Employer's standard benefits package for its executive employees
including, but not limited to, family health care insurance, officer and
director liability insurance (when obtained for Employer's other officers),
long-term disability (when obtained for Employer's other officers), vacation and
sick leave (the "Fringe Benefits"). Employer reserves the right to change such
benefits from time to time.
5.2 Accumulation. Employee shall not earn and accumulate unused
vacation and sick leave, or other Fringe Benefits, in excess of an unused amount
equal to the amount earned for one year. Furthermore, Employee shall not be
entitled to receive payments in lieu of said Fringe Benefits, other than for
unused vacation earned and
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<PAGE> 4
accumulated at the time the employment relationship terminates. All unused sick
leave and other Fringe Benefits earned during the preceding twelve (12) month
period ending on each anniversary of the date of this Agreement shall be
forfeited if not used within ninety (90) days following such anniversary date.
Notwithstanding the forgoing, if Employer adopts a more favorable accumulation
policy for its executives, Employee shall be entitled to the benefits of such
more favorable accumulation policy.
5.3 Personal Leave. Employee shall accrue fifteen (15) days of
personal leave during each year of his employment. Upon accrual of fifteen (15)
days of unused personal leave, no additional personal leave time will accrue
until Employee has used some of his accrued personal leave time and has reduced
the amount of accrued time below fifteen (15) days. Once Employee has taken
personal leave and his accrued personal leave time has dropped below fifteen
(15) days, Employee shall begin to accrue personal leave time again (at the rate
of fifteen (15) days per year), up to the maximum of fifteen (15) days.
Notwithstanding the foregoing, if Employer adopts a more favorable personal
leave policy for its executives, Employee shall be entitled to the benefits of
such more favorable personal leave policy.
5.4 Housing and Automobile. For the first three (3) months of this
Agreement, Employer shall reimburse Employee each month for the first Two
Thousand Dollars ($2,000) of Employee's housing and automobile expenses. Any
allowance paid pursuant to this Section 5.4 shall be "grossed up" to cover
Employee's local, state and federal income tax liability at Employee's then
current marginal tax rate if deemed necessary by Employer's accountants. The tax
gross-up payment(s) shall initially be calculated at an assumed effective
marginal rate of forty percent (40%) and paid to Employee no later than (i)
April 15 of the calendar year following any year Employee has expenses
reimbursed pursuant to this Section; and (ii) any date Employee is required to
make increased quarterly estimated payments due to Employee's receipt of the
allowance payments pursuant to this Section. Once Employee has finalized
Employee's federal and state income tax returns, Employee's effective marginal
rate shall be calculated and any shortfall or overpayment will be corrected.
5.5 Relocation Expenses. Employer shall reimburse Employee the
following expenses: (a) selling expenses related to sale of Employee's current
residence in England including realtor commissions and closing expenses
typically paid by sellers; (b) reasonable moving expenses incurred in the move
to San Diego, California; (c) the cost of up to two round trip coach airline
tickets from London, England to San Diego, California for Employee's spouse for
the purpose of looking at houses in the San Diego area during the first six (6)
months of this Agreement; and (d) a tax gross-up payment calculated at an
assumed effective marginal rate of forty percent (40%) to cover Employee's
income tax liability for expenses reimbursed pursuant to subsections (a), (b)
and (c) of this Section. Expenses related to subsections (a), (b) and (c) shall
be reimbursed within thirty (30) days after Employee submits adequate
verification of incurred expenses. The tax gross-up bonus related to subsection
(d) shall be paid to Employee no later than (i) April 15 of the calendar year
following any year Employee has expenses reimbursed pursuant to this Section;
and (ii) any date Employee is required
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<PAGE> 5
to make increased quarterly estimated payments due to Employee's receipt of
reimbursed expenses pursuant to subsections (a), (b) or (c) of this Section.
Once Employee has finalized Employee's federal and state income tax returns,
Employee's effective marginal rate shall be calculated and any shortfall or
overpayment will be corrected. Notwithstanding the foregoing, Employer's maximum
aggregate obligations to Employee pursuant to this Section shall not under any
circumstances exceed Fifty Thousand Dollars ($50,000).
5.6 Home Loan. In the event Employee purchases a residence in the
San Diego area prior to November 1, 1996, then Employer shall provide a second
mortgage loan to Employee in an amount no greater than Seventy Thousand Dollars
($70,000) at the then- lowest available interest rate (the "Home Loan");
provided, however, that the Home Loan shall (i) be utilized to purchase the
Employee's first San Diego area residential purchase; (ii) remain secured by a
second trust deed which is recorded at the time the Home Loan is made; and (iii)
not confer upon Employee any right to continued employment by Employer as a
result of Employee's repayment obligations under the Note evidencing the Home
Loan. Notwithstanding the foregoing, upon the earlier of (a) the effectiveness
of Employer's registration statement filed with the Securities and Exchange
Commission for Employer's initial public offering of its common stock or (b) the
termination of Employee's employment with Employer (for whatever reason), the
Home Loan shall be accelerated and shall automatically become due and payable
without any action by Employer.
5.7 Support in Immigration Proceedings. Throughout the Period of
Employment, Employer shall use its commercially reasonable efforts to support
Employee's application for a green card.
6. Inventions, Trade Secrets and Confidentiality.
6.1 Definitions.
6.1.1 Invention Defined. As used herein "Invention" means
inventions, discoveries, concepts and ideas, whether patentable or copyrightable
or not, including, but not limited to, processes, methods, formulas, techniques,
devices, designs, programs (including computer programs), computer graphics,
apparatus, products as well as improvements thereof or know-how related thereto,
relating to any present or anticipated business or activities of Employer.
6.1.2 Trade Secrets Defined. As used herein "Trade Secret"
means, without limitation, any document or information relating to Employer's
products, processes or services, including documents and information relating to
Inventions, and to the research, development, engineering or manufacture of
Inventions, and to Employer's purchasing, customer or supplier lists and pricing
policies, which documents or information have been disclosed to Employee or
known to Employee as a consequence of or through Employee's employment by
Employer (including documents, information
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<PAGE> 6
or Inventions conceived, originated, discovered or developed by Employee), which
is not generally known in the relevant trade or industry.
6.1.3 Protected Information. As used in this Agreement, the
term "Protected Information" shall mean, without limitation, all trade secrets,
confidential or proprietary information, and all other knowledge, data,
know-how, processes, information, document or materials, owned, developed or
possessed by Employer, whether in tangible or intangible form, the
confidentiality of which Employer takes reasonable measures to protect, and
which pertains in any manner to subjects which include, but are not limited to,
Employer's research operations, customers, identities of individual contacts at
business entities which are customers or prospective customers, preferences,
businesses or habits, business relationships, engineering data or results,
specifications, concepts, methods, processes, rates or schedules, customer or
vendor information, products (including, but not limited to, prices, costs,
sales or content), financial information or measures, business methods, future
business plans, databases, computer programs, designs, models, operating
procedures and knowledge of the organization.
6.2 Inventions.
6.2.1 Disclosure. Employee shall disclose promptly to Employer
each Invention, whether or not reduced to practice, which is conceived or
learned by Employee (either alone or jointly with others) during the Period of
Employment. Employee shall disclose in confidence to Employer all patent
applications filed by or on behalf of Employee during the Period of Employment
and for a period of one (1) year thereafter. Any disclosure of any Invention, or
any patent application, made within one (1) year after termination of employment
shall be presumed to relate to an Invention made during Employee's Period of
Employment, unless Employee clearly proves otherwise.
6.2.2 Employer Property; Assignment. Except as otherwise
provided in Section 6.2.3, Employee acknowledges and agrees that all Inventions
which are discovered, conceived, developed, made, produced or prepared by
Employee (alone or in conjunction with others) during the Period of Employment
shall be the sole property of Employer. Said property rights of Employer include
without limitation all domestic and foreign patent rights, rights of
registration or other protection under the patent and copyright laws, and all
other rights pertaining to the Inventions. Employee further agrees that all
services, products and Inventions that directly or indirectly result from
engagement with Employer shall be deemed "works for hire" as that term is
defined in Title 17 of the United States Code and accordingly all rights
associated therewith shall vest in Employer. Notwithstanding the foregoing,
Employee hereby assigns to Employer all of Employee's right, title and interest
in any such services, products and Inventions, in the event any such services,
products and Inventions shall be determined not to constitute "works for hire."
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<PAGE> 7
6.2.3 Exclusion Notice. The assignment by Employee of
Inventions under this Agreement does not apply to any Inventions which are owned
or controlled by Employee prior to the commencement of employment of Employee by
Employer (all of which are set forth on Exhibit "A" attached hereto).
Additionally, Employee is not required to assign an idea or invention where the
idea or invention meets all of the following criteria, namely if the invention
or idea: (i) was created or conceived without the use of any of Employer's
equipment, supplies, facilities or trade secret information, and (ii) was
developed entirely on Employee's own time, and (iii) does not relate to the
business of Employer, and (iv) does not relate to Employer's actual or
demonstrably anticipated research or development, and (v) does not result from
any work performed by Employee for Employer. Employee has
reviewed the notification in this Section 6.2.3 and in Exhibit "B" ("Limited
Exclusion Notification") and agrees that Employee's signature on the Limited
Exclusion Notification acknowledges receipt of the notification.
6.2.4 Patents and Copyrights; Attorney-in-Fact. Both before
and after termination of this Agreement (and with reasonable compensation paid
by Employer to Employee after termination), Employee agrees to assist the
Employer to apply for, obtain and enforce patent and/or copyright protection and
registration of, the Inventions described in Section 6.2.2 in any and all
countries. To that end, Employee shall (at Employer's request), without
limitation, testify in any proceeding, and execute any documents and assignments
determined to be necessary or convenient for use in applying for, obtaining,
registering and enforcing patent or copyright protection involving any of the
Inventions. Employee hereby irrevocably appoints Employer, and its duly
authorized officers and agents, as Employee's agent and attorney-in-fact to act
for and on behalf of Employee in filing all patent applications, applications
for copyright protection and registration, amendments, renewals and all other
appropriate documents in any way related to the Inventions described in Section
6.2.2.
6.3 Trade Secrets.
6.3.1 Acknowledgment of Proprietary Interest. Employee
recognizes the proprietary interest of Employer in any Trade Secrets of
Employer. Employee acknowledges and agrees that any and all Trade Secrets of
Employer, whether developed by Employee alone or in conjunction with others or
otherwise, shall be and are the property of Employer.
6.3.2 Covenant Not to Divulge Trade Secrets. Employee
acknowledges and agrees that Employer is entitled to prevent the disclosure of
Employer's Trade Secrets or Protected Information. As a portion of the
consideration for the employment of Employee and for the compensation being paid
to Employee by Employer, Employee agrees at all times during the Period of
Employment by Employer and thereafter to hold in strictest confidence, and not
to use, disclose or allow to be disclosed to any person, form or corporation,
Employer's Trade Secrets or Protected Information, including Trade Secrets
developed by Employee, other than disclosures, with Employer's express prior
written consent, to persons who have entered into confidentiality agreements
with Employer.
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<PAGE> 8
6.3.3 Confidential Information of Others. Employee represents
and warrants that if Employee has any confidential information belonging to
others, Employee will not use or disclose to Employer any such information or
documents. Employee represents that his employment with Employer will not
require him to violate any obligation to or confidence with any other party.
6.4 No Adverse Use. Employee will not at any time during the
Period of Employment or thereafter use Employer's Trade Secrets, Protected
Information or Inventions in any manner which may directly or indirectly have an
adverse effect upon Employer's business, nor will Employee perform any acts
which would tend to reduce Employer's proprietary value in Employer's Trade
Secrets, Protected Information or Inventions.
6.5 Remedies Upon Breach. In the event of any breach by Employee
of the provisions in this Section 6, Employer shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to enjoin Employee from violating any
of the terms of this Section 6, to enforce the specific performance by Employee
of any of the terms of this Section 6, and to obtain damages, or any of them,
but nothing herein contained shall be construed to prevent such remedy or
combination of remedies as Employer may elect to invoke. The failure of Employer
to promptly institute legal action upon any breach of this Section 6 shall not
constitute a waiver of that breach or any other breach hereof.
7. Covenant Not to Compete. Employee agrees that, during Employee's
employment, Employee will not directly or indirectly compete with Employer in
any way, and that Employee will not act as an officer, director, employee,
consultant, shareholder, lender or agent of any other entity which is engaged in
any business of the same nature as, or in competition with, the business in
which Employer is now engaged or in which Employer becomes engaged during the
term of Employee's employment, or which is involved in science or technology
which is similar to Employer's science or technology. During Employee's
employment, and for a period of one (1) year thereafter, Employee shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of Employer or any subsidiary of Employer to leave the employ of
Employer or such subsidiary, or in any way interfere with the relationship
between the Employer or any subsidiary at any time; or (ii) induce or attempt to
induce any customer, supplier, licensee, licensor or other party which has a
contractual relationship with Employer or its subsidiaries or affiliates to
cease doing business with Employer or any such subsidiary (including, without
limitation, making any negative statements or communications about Employer or
its affiliates).
8. Stock Options. Simultaneous with the execution of this Agreement,
Employer and Employee will enter into a written stock option agreement
substantially in the form attached hereto as Exhibit C, pursuant to which
Employee will be granted an incentive stock option for 335,300 shares of the
Company's Common Stock, exercisable at $0.062 per share and vesting twenty-five
percent (25%) as of October __, 1996 and 1/48th each month thereafter.
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<PAGE> 9
9. General Provisions.
9.1 Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in writing and signed by both
parties hereto. There shall be no implied-in-fact contracts modifying the terms
of this Agreement.
9.2 Entire Agreement. This Agreement, and the Exhibits attached
hereto, constitutes the entire agreement between the parties with respect to the
employment of Employee. This Agreement supersedes all prior agreements,
understandings, negotiations and representation with respect to the employment
relationship including, but not limited to the Memorandum dated August 28, 1995,
containing proposed terms and conditions for hiring Employee.
9.3 Successors and Assigns. The rights and obligations of Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Employer. Employee shall not be entitled to assign any
of Employee's rights or obligations under this Agreement.
9.4 Waiver. Either party's failure to enforce any provision of
this Agreement shall not in any way be construed as a waiver of any such
provision, or prevent that party thereafter from enforcing each and every other
provision of this Agreement.
9.5 Severable Provisions. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be judicially
unenforceable, in whole or in part, the remaining provisions shall nevertheless
be binding and enforceable.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same Agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.7 Choice of Law. This Agreement shall be governed and construed
in accordance with the laws of California.
9.8 Jurisdiction and Venue. In the event that any legal
proceedings are commenced in any court with respect to any matter arising under
this Agreement, Employer and Employee specifically consent and agree that:
(a) the courts of the State of California and/or the United
States Federal Courts located in the State of California shall have exclusive
jurisdiction over each of the parties and such proceedings; and
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<PAGE> 10
(b) the venue of any such action shall be in San Diego
County, California and/or the United States District Court for the Southern
District of California.
10. Employee's Representations. Employee represents and warrants that
Employee (i) is free to enter into this Agreement and to perform each of the
terms and covenants contained herein, (ii) is not restricted or prohibited,
contractually or otherwise, from entering into and performing this Agreement,
and (iii) will not be in violation or breach of any other agreement by reason of
Employee's execution and performance of this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates first set forth above.
EMPLOYER:
COMBICHEM, INC., a California corporation
By: /s/ Peter Myers
-------------------------------------
Its: Chief Operating Officer
------------------------------------
EMPLOYEE:
JOHN SAUNDERS
/s/ John Saunders
-----------------------------------------
(Signature)
Address: 190 Del Mar Shores #59
--------------------------------
Solana Beach, CA 92075
-----------------------------------------
-----------------------------------------
[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]
<PAGE> 12
EXHIBIT A
LIST OF PRIOR INVENTIONS (SECTION 6.2.3)
None, other than the following: ________________________________________________
________________________________________________________________________________
A-1
<PAGE> 13
EXHIBIT B
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and Employer does not
require you to assign or offer to assign to Employer inventions that you
developed entirely on your own time without using Employer's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
(1) Relate at the time of conception or reduction to practice of the
invention to Employer's business, or Employer's actual or demonstrably
anticipated research or development.
(2) Result from any work performed by you for Employer.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered
by a contract between Employer and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By: /s/ John Saunders
-------------------------------------
-------------------------------------
Dated: 18th July 96
----------------------------------
Witnessed by:
/s/ Bobbie J. Bosley
- ---------------------------------
Bobbie J. Bosley
- ---------------------------------
(Printed Name of Representative)
Dated: 7/18/96
--------------------------
B-1
<PAGE> 14
EXHIBIT C
STOCK OPTION AGREEMENT
C-1
<PAGE> 15
COMBICHEM, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board of Directors of the Corporation has adopted the CombiChem,
Inc. 1995 Stock Option/Stock Issuance Plan (the "Plan") for the purpose of
attracting and retaining the services of persons who contribute to the growth
and financial success of the Corporation.
B. Optionee is a person who the Plan Administrator believes has and
will contribute to the growth and financial success of the Corporation and this
Agreement is executed pursuant to and is intended to carry out the purposes of
the Plan.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of the
grant date (the "Grant Date") specified in the accompanying Notice of Grant of
Stock Option (the "Grant Notice"), a stock option to purchase up to that number
of shares of the Corporation's Common Stock (the "Option Shares") as is
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term at the option price per share (the "Option
Price") specified in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten (10) years
measured from the Grant Date and shall expire at the close of business on the
expiration date (the "Expiration Date") specified in the Grant Notice, unless
sooner terminated in accordance with Paragraph 5, 6 or 17.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee.
4. DATES OF EXERCISE. This option may not be exercised in whole or in
part at any time prior to the time the Plan is approved by the Corporation's
shareholders in accordance with Paragraph 17. Provided such shareholder approval
is obtained, this option shall thereupon become exercisable for the Option
Shares in one or more installments as is specified in the Grant Notice. As the
option becomes exercisable in one or more installments, the installments shall
accumulate and the option shall remain
<PAGE> 16
exercisable for such installments until the Expiration Date or the sooner
termination of the option term under Paragraph 5 or Paragraph 6 of this
Agreement.
5. ACCELERATED TERMINATION OF OPTION TERM. Unless extended by the Plan
Administrator in its sole discretion, the option term specified in Paragraph 2
shall terminate (and this option shall cease to be exercisable) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Except as otherwise provided in subparagraph (ii) or (iii)
below, should Optionee cease to remain in Service while this option is
outstanding, then the period for exercising this option shall be reduced
to a three (3)-month period commencing with the date of such cessation of
Service, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such three (3)-month
period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(ii) Should Optionee die while this option is outstanding, 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 law of descent and distribution shall have the right
to exercise this option. Such right shall lapse and this option shall
cease to be exercisable upon the earlier of (A) the expiration of the
twelve (12) month period measured from the date of Optionee's death or (B)
the Expiration Date. Upon the expiration of such twelve (12) month period
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to remain in Service while this option is outstanding, then
the Optionee shall have a period of twelve (12) months (commencing with
the date of such cessation of Service) during which to exercise this
option, but in no event shall this option be exercisable at any time after
the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is unable to engage in any substantial gainful activity for
the Corporation or the parent or subsidiary corporation retaining his/her
services by reason of any medically determinable physical or mental
impairment, which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve
(12) months. Upon the expiration of such limited period of exercisability
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.
(iv) During the limited period of exercisability applicable under
subparagraph (i), (ii) or (iii) above, this option may be exercised for
any or all of the Option Shares for which this option is, at the time of
the
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<PAGE> 17
Optionee's cessation of Service, exercisable in accordance with the
exercise schedule specified in the Grant Notice and the provisions of
Paragraph 6 of this Agreement.
(v) For purposes of this Paragraph 5 and for all other purposes
under this Agreement:
A. The Optionee shall be deemed to remain in SERVICE for so long
as the Optionee continues to render periodic services to the Corporation
or any parent or subsidiary corporation, whether as an Employee, a
non-employee member of the board of directors, or an independent
contractor or consultant.
B. The Optionee shall be deemed to be an EMPLOYEE of the
Corporation and to continue in the Corporation's employ for so long as the
Optionee remains in the employ of the Corporation or one or more of its
parent or subsidiary corporations, 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.
C. A corporation shall be considered to be a SUBSIDIARY
corporation of the Corporation if it is a member of an unbroken chain of
corporations beginning with the Corporation, provided each such
corporation in the chain (other than the last corporation) owns, at the
time of determination, stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain.
D. A corporation shall be considered to be a PARENT corporation
of the Corporation if it is a member of an unbroken chain ending with the
Corporation, provided each such corporation in the chain (other than the
Corporation) owns, at the time of determination, stock possessing 50% or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
6. SPECIAL TERMINATION OF OPTION.
A. This Option, to the extent not previously exercised, shall terminate
and cease to be exercisable upon the consummation of one or more of the
following shareholder-approved transactions (a "Corporate Transaction") unless
this Option is expressly assumed by the successor corporation or parent thereof:
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
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<PAGE> 18
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation.
B. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES.
A. In the event any change is made to the Corporation's outstanding
Common Stock by reason of any stock split, stock dividend, combination of
shares, exchange of shares, or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the total number of Option Shares subject to this option,
(ii) the number of Option Shares for which this option is to be exercisable from
and after each installment date specified in the Grant Notice and (iii) the
Option Price payable per share in order to reflect such change and thereby
preclude a dilution or enlargement of benefits hereunder.
B. If this option is to be assumed in connection with a Corporate
Transaction described in Paragraph 6 or is otherwise to remain outstanding, then
this option shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain 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, and appropriate adjustments shall also be made to the Option Price
payable per share, provided the aggregate Option Price payable hereunder shall
remain the same.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a shareholder with respect to the Option Shares until
such individual shall have exercised the option and paid the Option Price.
9. MANNER OF EXERCISING OPTION.
A. In order to exercise this option with respect to all or any part of
the Option Shares for which this option is at the time exercisable, Optionee (or
in the case of exercise after Optionee's death, the Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
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<PAGE> 19
(i) Execute and deliver to the Secretary of the Corporation a
stock purchase agreement (the "Purchase Agreement") in substantially the
form of Exhibit B to the Grant Notice.
(ii) Pay the aggregate Option Price for the purchased shares in one
or more forms approved under the Plan.
(iii) Furnish to the Corporation appropriate documentation that the
person or persons exercising the option, if other than Optionee, have the
right to exercise this option.
B. Should the Corporation's outstanding Common Stock be registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") at the time the option is exercised, then the Option Price may also
be paid as follows:
(i) in shares of Common Stock held by the Optionee 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) through a special sale and remittance procedure pursuant to
which the Optionee is to provide irrevocable written instructions (a) to a
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 Option Price
payable for the purchased shares plus all applicable Federal and State
income and employment taxes required to be withheld by the Corporation by
reason of such purchase and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in
order to effect the sale transaction.
C. For purposes of this Agreement, the Exercise Date shall be the date
on which the executed Purchase Agreement shall have been delivered to the
Corporation, and the fair market value of a share of Common Stock on any
relevant date shall be determined in accordance with subparagraphs (i) through
(iii) below:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the NASDAQ National Market
System, the fair market value shall be the closing selling price of one
share of Common Stock on the date in question, as such price is reported
by the National Association of Securities Dealers through its NASDAQ
system or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the closing selling price
on the last preceding date for which such quotation exists shall be
determinative of fair market value.
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<PAGE> 20
(ii) If the Common Stock is at the time listed or admitted to
trading 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 reported
sale of Common Stock on such exchange on the date in question, then the
fair market value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
(iii) If the Common Stock at the time is neither listed nor admitted
to trading on any stock exchange nor traded in the over-the-counter
market, or if the Plan Administrator determines that the value determined
pursuant to subparagraphs (i) and (ii) above does not accurately reflect
the fair market value of the Common Stock, then such fair market value
shall be determined by the Plan Administrator after taking into account
such factors as the Plan Administrator shall deem appropriate.
D. As soon after the Exercise Date as practical, the Corporation shall
mail or deliver to Optionee or to the other person or persons exercising this
option a certificate or certificates representing the shares so purchased and
paid for, with the appropriate legends affixed thereto.
E. In no event may this option be exercised for any fractional shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
A. The exercise of this option and the issuance of Option Shares upon
such exercise shall be subject to compliance by the Corporation and the Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Corporation's Common
Stock may be listed at the time of such exercise and issuance.
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
12. LIABILITY OF CORPORATION.
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<PAGE> 21
A. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares, unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Article IV, Section 3, of the
Plan.
B. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee's
signature line on the Grant Notice. All notices shall be deemed to have been
given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
14. LOANS. The Plan Administrator may, in its absolute discretion and
without any obligation to do so, assist the Optionee in the exercise of this
option by (i) authorizing the extension of a loan to the Optionee from the
Corporation or (ii) permitting the Optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
such loan or installment method of payment (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this option.
16. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Corporation's shareholders within twelve (12) months
after the adoption of the Plan by the Board of Directors. Notwithstanding any
provision of this Agreement to the contrary, this option may not be exercised in
whole or in part until such shareholder approval is obtained. In the event that
such shareholder approval is
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<PAGE> 22
not obtained, then this option shall thereupon terminate in its entirety and the
Optionee shall have no further rights to acquire any Option Shares hereunder.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In the
event this option is designated an incentive stock option in the Grant Notice,
the following terms and conditions shall also apply to the grant:
A. This option shall cease to qualify for favorable tax treatment as an
incentive stock option under the Federal tax laws if (and to the extent) this
option is exercised for one or more Option Shares: (i) more than three (3)
months after the date the Optionee ceases to be an Employee for any reason other
than death or permanent disability (as defined in Paragraph 5) or (ii) more than
one (1) year after the date the Optionee ceases to be an Employee by reason of
permanent disability.
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<PAGE> 23
B. Should this option be designated as immediately exercisable in the
Grant Notice, then this option shall not become exercisable in the calendar year
in which granted if (and to the extent) the aggregate fair market value
(determined at the Grant Date) of the Corporation's Common Stock for which this
option would otherwise first become exercisable in such calendar year would,
when added to the aggregate fair market value (determined as of the respective
date or dates of grant) of the Corporation's Common Stock for which this option
or one or more other incentive stock options granted to the Optionee prior to
the Grant Date (whether under the Plan or any other option plan of the
Corporation or its parent or subsidiary corporations) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. To the extent the exercisability of this option is deferred by
reason of the foregoing limitation, the deferred portion will first become
exercisable in the first calendar year or years thereafter in which the One
Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18.B would not
be contravened.
C. Should this option be designated as exercisable in installments in
the Grant Notice, then no installment under this option (whether annual or
monthly) shall qualify for favorable tax treatment as an incentive stock option
under the Federal tax laws if (and to the extent) the aggregate fair market
value (determined at the Grant Date) of the Corporation's Common Stock for which
such installment first becomes exercisable hereunder will, when added to the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Corporation's Common Stock for which one or more other incentive
stock options granted to the Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any parent or subsidiary
corporation) first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate.
19. WITHHOLDING. Optionee hereby agrees to make appropriate arrangements
with the Corporation or parent or subsidiary corporation employing Optionee for
the satisfaction of all Federal, State or local income tax withholding
requirements and Federal social security employee tax requirements applicable to
the exercise of this option.
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<PAGE> 1
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of July 1,
1995, by and between CombiChem(TM), Inc., a California corporation ("Employer"),
and Steven Teig ("Employee").
NOW, THEREFORE, the parties agree as follows:
1. Employment. Employer hereby engages Employee, and Employee hereby
accepts such engagement, upon the terms and conditions set forth herein.
2. Duties. During the term of this Agreement, Employee shall be
employed as the Employer's Vice President. Employee shall faithfully and
diligently perform the duties customarily performed by persons in the position
or positions for which Employee is engaged together with such other reasonable
and appropriate duties as Employer shall designate from time to time. Employee
shall devote Employee's full business time and effort to the rendition of such
services and to the performance of such duties. As a full-time employee of
Employer, Employee shall not be entitled to provide consulting services or other
business or scientific services to any other party, without prior written
consent of Employer's Board of Directors (the "Board").
3. Compensation.
3.1 Base Salary. During the term of this Agreement, as
compensation for the proper and satisfactory performance of all duties to be
performed by Employee hereunder, Employer shall pay to Employee a salary at the
annual rate of One Hundred & Thirty-Five Thousand dollars ($135,000) payable in
accordance with Employee's standard payroll practices, less required deductions
for state and federal withholding tax, Social Security and all other employee
taxes and payroll deductions. Employee's base salary shall be reviewed annually
by the Board and may be increased or decreased in the sole discretion of the
Board.
3.2 Bonuses.
3.2.1 Signing Bonus. Employee shall be entitled to receive a
signing bonus in the amount of $20,000 (plus an amount which equals the federal
and state taxes on $15,000) which shall be paid by Employer within ten business
days after execution of this Agreement.
3.2.2 Performance Bonus. At the beginning of each fiscal year
of Employer, Employer and Employee shall reach mutually agreed upon financing
and business objectives for employer for its upcoming fiscal year which shall be
set forth in writing and approved by the Board. At the end of each such fiscal
year, the Board shall determine, in its reasonable discretion, the size and
amount of Employee's performance bonus, if any, up to a maximum of twenty
percent (20%) of Employee's base salary during the prior fiscal year (the
"Annual Performance Bonus"). The Annual Performance Bonus shall be paid to
Employee within sixty (60) days following Employer's fiscal year end. Employee
is not eligible for an Annual
<PAGE> 2
Performance Bonus for events occurring prior to the date of this Agreement. The
first Annual Performance Bonus shall be (i) no greater than an amount equal to
the amount of the maximum Annual Performance Bonus Employee is entitled to
receive multiplied by the quotient of (x) the number of calendar days during
Employer's 1995 fiscal year on which Employee is an employee of Employer divided
by (y) three hundred sixty-five (365); (ii) based on Employer's 1995 fiscal year
achievements; (iii) paid to Employee by March 1, 1996; and (iv) guaranteed to be
not less than one-half (1/2) of the maximum amount which Employee is entitled to
receive pursuant to paragraph (i) above; provided, however, that no other Annual
Performance Bonus shall have any guaranteed minimum payment.
4. Term of Employment.
4.1 Period of Employment. The Employee's period of employment by
Employer pursuant to this Agreement shall commence on the date of this Agreement
("Commencement Date") and end upon the date the employment relationship is
terminated pursuant to Section 4.2 or 4.3 (the "Period of Employment").
4.2 Termination at Will. Although Employer and Employee anticipate
a long and mutually rewarding employment relationship, either party may
terminate this Agreement, without cause, upon 14 days prior written notice
delivered to the other party. It is expressly understood and agreed that the
employment relationship is "at will," without any agreement for employment for
any specified term, and without any agreement for employment for so long as
Employee performs satisfactorily.
4.3 Termination for Cause. Employer may immediately terminate this
employment relationship "for cause" upon written notice to Employee. For
purposes of this Agreement, "for cause" shall be limited to the following; (i)
Employee's intentional violation of any written rule or policy of Employer or
its subsidiaries (a "Violation") which, after written notice of a Violation,
Employee fails to correct within twenty (20) days of receipt of such notice from
the Board; (ii) any material failure by Employee to comply with any reasonable
directive of the Board which, after receiving written notice to do so, Employee
fails to comply within twenty (20) days of receipt of such notice from the
Board; (iii) Employee's willful misconduct concerning any material
responsibility reasonably assigned to Employee; (iv) without obtaining the prior
consent of the Board, Employee's active and intentional performance of services
for any other corporation or person which competes with Employer or its
subsidiaries while Employee is employed by Employer or its subsidiaries; (v) the
Board reasonably determines that Employee has stolen or embezzled either funds
or property of Employer; (vi) Employee's conviction by a court of competent
jurisdiction of a felony (other than a traffic or moving violation) involving
moral turpitude or dishonesty; (vii) Employee's intentional or grossly negligent
conduct or violation of law which results in either an unlawful personal benefit
to Employee or a material injury to Employer; (viii) the death or disability of
Employee; or (ix) any breach by Employee of any confidentiality or
non-disclosure agreement executed by Employee and Employer.
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<PAGE> 3
4.4 Obligations Upon Termination.
4.4.1 Survival of Obligations. The parties' obligations under
Sections 4.4.2, 6, 7, 10.7 and 10.8, shall survive the termination of this
Agreement.
4.4.2 Return of Materials at Termination. Upon termination of
the Period of Employment, Employee will promptly deliver to Employer all
materials, property, documents, data, and other information belonging to
Employer or containing Employer's Trade Secrets. Employee shall not take any
materials, property, documents or other information, or any reproduction or
excerpt thereof, belonging to Employer or containing any Trade Secrets.
4.4.3 Resignation. Upon termination of the Period of
Employment, Employee shall be deemed to have resigned from any and all offices
then held with Employer.
5. Benefits.
5.1 Health Insurance. Employee shall be entitled to Employer's
standard benefits package for its employees including, but not limited to family
health care insurance (the "Fringe Benefits"). Employer agrees to pay Employee's
monthly COBRA continuation policy premiums until Employer's own health care
program is instituted for Employer's employees. Employer makes no warranties as
to insurance coverage of pre-existing conditions and shall not be obligated to
provide any coverage to Employee not included in Employer's standard health care
program. If Employee cannot be covered by such program, then Employer shall
apply its mean per employee insurance premium payment towards Employee's
independently obtained insurance policy and premium. Employer reserves the right
to change such benefits from time to time in its sole discretion.
5.2 Life Insurance. In addition to Employee's standard Employer
provided life insurance policy, provided that Employee is insurable at
commercially reasonable rates, Employer shall obtain and maintain, during the
term of this Agreement and any extension thereof, a term life insurance policy
on the Employee's life in an amount no less than five hundred thousand dollars
($500,000) (the "Life Insurance Policy"). Employer shall pay the premiums and
Employee shall designate the beneficiary of the Life Insurance Policy.
5.3 Personal Leave. Employee shall accrue fifteen days of paid
personal leave during each year of Employee's employment. Upon accrual of
fifteen days of unused personal leave, no additional personal leave time will
accrue until Employee has used some of the accrued personal leave time and has
reduced the amount of accrued time below fifteen days. Once Employee has taken
personal leave and his accrued time has dropped below fifteen days, Employee
shall begin to accrue personal leave time again (at the rate of fifteen days per
year), up to the maximum of fifteen days. Notwithstanding the foregoing, if
Employer adopts a personal leave policy for its executives permitting them to
accrue more than fifteen days personal leave, Employee shall be entitled to the
benefits of such policy.
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<PAGE> 4
6. Inventions Trade Secrets and Confidentiality.
6.1 Definitions.
6.1.1 Invention Defined. As used herein "Inventions" means
inventions, discoveries, concepts, and ideas, whether patentable or
copyrightable or not, including but not limited to processes, methods, formulas,
techniques, devices, designs, programs (including computer programs), computer
graphics, apparatus, products, as well as improvements thereof or know-how
related thereto, relating to any present or anticipated business or activities
of Employer.
6.1.2 Trade Secret Defined. As used herein "Trade Secret"
means, without limitation, any document or information relating to Employer's
products, processes or services, including documents and information relating to
Inventions, and to the research, development, engineering or manufacture of
Inventions, and to Employer's purchasing, customer or supplier lists and pricing
policies, which documents or information have been disclosed to Employee or
known to Employee as a consequence of or through Employee's employment by
Employer (including documents, information or Inventions conceived, originated,
discovered or developed by Employee), which is not generally known in the
relevant trade or industry. Nothing in this Agreement shall be construed to
alter or enlarge the definition of "trade secret" as set forth in Civil Code
Section 3426.1(d).
6.2 Inventions.
6.2.1 Disclosure. Employee shall disclose promptly to Employer
each Invention, whether or not reduced to practice, which is conceived or
learned by Employee (either alone or jointly with others) during the term of his
employment or engagement as a consultant with Employer. Employee shall disclose
in confidence to Employer all patent applications filed by or on behalf of
Employee during the term of his employment or engagement as a consultant and
will disclose in confidence to Employer's outside patent counsel all patent
applications filed by or on behalf of Employee for a period of one year
thereafter.
6.2.2 Employer Property; Assignment. Except as otherwise
provided in Section 6.2.3, Employee acknowledges and agrees that all Inventions
which are discovered, conceived, developed, made, produced or prepared by
Employee (alone or in conjunction with others) during the duration of Employee's
employment or engagement as a consultant with Employer shall be the sole
property of Employer. Said property rights of Employer include without
limitation all domestic and foreign patent rights, rights of registration or
other protection under the patent and copyright laws, and all other rights
pertaining to the Inventions. Employee further agrees that all Inventions which
are generated by Employee within the scope of his employment with Employer shall
be deemed "works for hire" as that term is defined in Title 17 of the United
States Code and accordingly all rights associated therewith shall vest in
Employer. To effectuate Employer's ownership as set forth in the first sentence,
Employee hereby assigns to Employer all of Employee's right, title and interest
in all such Inventions, regardless of whether such Inventions are deemed to be
"works for hire."
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<PAGE> 5
6.2.3 Exclusion Notice. The assignment by Employee of
Inventions under this Agreement does not apply to any Inventions which are owned
or controlled by Employee prior to the commencement of employment of Employee by
Employer (all of which are set forth on Exhibit "A" hereto). Additionally,
Employee is not required to assign an idea or invention where the invention or
idea meets all of the following criteria, namely the invention or idea: (i) was
created or conceived without the use of any of Employer's equipment, supplies,
facilities, or trade secret information, and (ii) was developed entirely on
Employee's own time, and (iii) does not relate to the business of Employer, and
(iv) does not relate to Employer's actual or demonstrably anticipated research
or development, and (v) does not result from any work performed by Employee for
Employer. Employee has reviewed the notification in this Section 6.2.3 and in
Exhibit B ("Limited Exclusion Notification") and agrees that Employee's
signature on the Limited Exclusion Notification acknowledges receipt of the
notification.
6.2.4 Patents and Copyrights; Attorney-in-Fact. Both before
and after termination of this Agreement (and with reasonable compensation paid
by Employer to Employee after termination), Employee agrees to assist Employer
to apply for, obtain and enforce patents on, and to apply for, obtain and
enforce copyright protection and registration of, the Inventions described in
Section 6.2.2 in any and all countries. To that end, Employee shall (as
reasonably requested by Employer), testify in any proceeding and execute any
documents and assignments determined to be necessary or convenient for use in
applying for, obtaining, registering and enforcing patent or copyright
protection involving any of the Inventions. Employee hereby irrevocably appoints
Employer, and its duly authorized officers and agents, as Employee's agent, and
attorney-in-fact to act for and in behalf of Employee in filing all patent
applications, applications for copyright protection and registration,
amendments, renewals, and all other appropriate documents in any way related to
the Inventions described in Section 6.2.2.
6.3 Trade Secrets.
6.3.1 Acknowledgement of Proprietary Interest. Employee
recognizes the proprietary interest of Employer in any Trade Secrets of
Employer. Employee acknowledges and agrees that any and all Trade Secrets of
Employer, whether developed by Employee alone or in conjunction with others or
otherwise, shall be and are the property of Employer.
6.3.2 Covenant not to Divulge Trade Secrets. Employee
acknowledges and agrees that Employer is entitled to prevent the disclosure of
Employer's Trade Secrets. As a portion of the consideration for the employment
of Employee and for the compensation being paid to Employee by Employer,
Employee agrees at all times during the term of the employment by the Employer
and thereafter to hold in strictest confidence, and not to use, disclose or
allow to be disclosed to any person, firm, or corporation, without Employer's
express prior written consent, Employer's Trade Secrets, including Trade Secrets
developed by Employee, other than disclosures to persons who have entered into
confidentiality agreements with Employer.
6.3.3 Confidential Information of Others. Employee represents
and warrants that if Employee has any confidential information belonging to
others, Employee will not use or disclose to Employer any such information or
documents. Employee represents that
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<PAGE> 6
his employment with Employer will not require him to violate any obligation to
or confidence with any other party.
6.4 No Adverse Use. Employee will not at any time during the term
of employment or thereafter use Employer's Trade Secrets or Inventions in any
manner which may directly or indirectly have an adverse effect upon Employer's
business, nor will Employee perform any acts which would tend to reduce
Employer's proprietary value in Employer's Trade Secrets or Inventions.
6.5 Remedies Upon Breach. In the event of any breach by Employee
of the provision in this Section 6, Employer shall be entitled, if it so elects,
to institute and prosecute proceedings in any court of competent jurisdiction,
either in law or in equity, to enjoin Employee from violating any of the terms
of this Section 6, to enforce the specific performance by Employee of any of the
terms of this Section 6, and to obtain damages, or any of them, but nothing
herein contained shall be construed to prevent such remedy or combination of
remedies as Employer may elect to invoke. The failure of Employer to promptly
institute legal action upon any breach of this Section 6 shall not constitute a
waiver of that or any other breach hereof.
7. Non-Solicitation and Other Covenants. In further consideration of
the compensation to be paid to Employee hereunder, Employee agrees that, during
Employee's employment, Employee will not directly or indirectly compete with
Employer in any way, and that Employee will not act as an officer, director,
employee, consultant, lender, agent or owner of any interest in any other entity
which is engaged in any business which is of the same nature as, which is in
competition with, or which is involved in science or technology which is similar
to the businesses in which Employer or its subsidiaries (i) are now engaged,
(ii) become engaged in during the term of Employee's employment or (iii) plan to
become engaged in prior to the date of Employee's termination; provided,
however, that nothing in this Section 7 shall prohibit Employee from being a
passive owner of not more than one percent (1%) of the outstanding stock of any
class of a corporation which is publicly traded on the NYSE, NASDAQ or ASE stock
exchanges, so long as Employee has no active participation in the business of
such corporation. During Employee's employment, the term of any consulting
engagement of Employee pursuant to Section 4.4.3, and for a period of one (1)
year thereafter, Employee shall not directly or indirectly through another
entity induce or attempt to induce any employee of Employer or any subsidiary of
Employer to leave the employ of Employer or such subsidiary, or in any way
interfere with the relationship between the Employer or any subsidiary and the
employee thereof. After the end of Employee's employment, Employee agrees not to
use or disclose any trade secret of Employer for any reason and not to make any
negative statements or communications about Employer or its affiliates to any
customer, supplier, licensee, licensor or other party which has a contractual
relationship with Employer or its subsidiaries, employees or affiliates.
8. Additional Rights.
8.1 Common Stock Purchase Agreement. Simultaneous with the
execution of this Agreement, Employee and Employer shall enter into a written
restricted stock purchase agreement for Employee to purchase Two Hundred
Thousand (200,000) shares of Employer's
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<PAGE> 7
common stock at seven and one-half cents ($0.075) per share (the "Shares") in
the form of agreement previously reviewed and approved by Employee. The Shares
shall be subject to a four year right of repurchase in favor of the Company
under which the Company may repurchase any "unvested shares." None of the Shares
shall vest during the first twelve (12) months of employment pursuant to this
Agreement. On the first anniversary of the Commencement Date, thirty-five
percent (35%) of the Shares shall vest. Thereafter, one-thirty-sixth (1/36) of
the remaining Shares shall vest in a series of thirty-six successive monthly
installments at the end of each month for so long as Employee is employed by
Employer. Employee shall be solely responsible for the filing of an 83(b)
election with the Internal Revenue Service ("IRS") concerning the purchase of
the Shares.
8.2 Option to Purchase Preferred Stock. At the first Board meeting
after execution of this Agreement, Employer shall grant to Employee options to
purchase Two Hundred & Forty-Five Thousand (245,000) restricted shares of
Employer's Series J Preferred Stock at ten cents ($0.10) per share, on the
following terms: An option for 60,000 of such shares will be exercisable only if
and when a mutually defined project deliverable is delivered to Employer by
Employee within the mutually agreed time frame. A second option for 60,000 of
such shares will be exercisable only if and when a second mutually defined
project deliverable is delivered to Employer by Employee within the mutually
agreed time frame. A third option for 125,000 of such shares will be exercisable
only if and when a third mutually defined project deliverable is delivered to
Employer by Employee within the mutually agreed time frame.
9. Employee's Representations. Employer acknowledges that Employee has
made Employer aware of Employee's previous agreement with MSI. Except for such
agreement (and without making any representation as to the effect of that
agreement), Employee represents and warrants that Employee (i) is free to enter
into this Agreement and to perform each of the terms and covenants contained
herein, (ii) is not restricted or prohibited, contractually or otherwise, from
entering into and performing this Agreement, and (iii) will not be in violation
or breach of any other agreement by reason of Employee's execution and
performance of this Agreement.
10. General Provisions.
10.1 Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in writing and signed by both
parties hereto. There shall be no implied-in-fact contracts modifying the terms
of this Agreement.
10.2 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the employment of Employee. This
Agreement supersedes all prior agreements, understandings, negotiations and
representation with respect to the employment relationship between Employer and
Employee including, but not limited to, the offer letter dated May 12, 1995
which contained proposed terms and conditions for hiring Employee; provided,
however, this Agreement shall not supersede any (I) confidentiality or
non-disclosure agreement or (ii) restricted stock purchase or option agreement
previously or contemporaneously executed by Employee and Employer.
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<PAGE> 8
10.3 Successors and Assigns. The rights and obligations of Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Employer. Employee shall not be entitled to assign any
of Employee's rights or obligations under this Agreement.
10.4 Waiver. Either party's failure to enforce any provision of
this Agreement shall not in any way be construed as a waiver of any such
provision, or prevent that party thereafter from enforcing each and every other
provision of this Agreement.
10.5 Severable Provisions. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be judicially
unenforceable, in whole or in part, the remaining provisions shall nevertheless
be binding and enforceable.
10.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same Agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
10.7 Choice of Law. This Agreement shall be governed and construed
in accordance with the internal laws of California without regard to its
conflicts of laws principles.
10.8 Jurisdiction and Venue. In the event that any legal
proceedings are commenced in any court with respect to any matter arising under
this Agreement, Employer and Employee specifically consent and agree that: (i)
the courts of the State of California and/or the United States Federal Courts
located in the State of California shall have exclusive jurisdiction over each
of the Parties and such proceedings; and (ii) the venue of any such action shall
be in San Diego County, California and/or the United States District Court for
the Southern District of California.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
EMPLOYER:
COMBICHEM(TM), INC., a California corporation
By: /s/ Robert Curtis
------------------------------------------
Robert A. Curtis,
Chief Executive Officer
EMPLOYEE:
STEVEN TEIG
/s/ Steven Teig
----------------------------------------------
(Signature)
Address: 904 Ramona Street
Palo Alto, CA 94301
[SIGNATURE PAGE TO TEIG EMPLOYMENT AGREEMENT]
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<PAGE> 10
EXHIBIT A
LIST OF PRIOR INVENTIONS
(Section 6.2.3)
None, other than the following: ______________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 11
EXHIBIT B
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and Employer does not
require you to assign or offer to assign to Employer any invention that you
developed entirely on your own time without using Employer's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
(1) Relate at the time of conception or reduction to practice of the
invention to Employer's business, or Employer's actual or demonstrably
anticipated research or development; or
(2) Result from any work performed by you for Employer.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered
by a contract between Employer and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By: _____________________________________
Steven Teig
Date: ___________________________________
Witnessed by:
- -------------------------------------
- -------------------------------------
(Printed Name of Witness)
Dated:_________________________
<PAGE> 1
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of March
14, 1996, by and between CombiChem, Inc., a California corporation ("Employer"),
and Vicente Anido, Jr. ("Employee").
NOW, THEREFORE, the parties agree as follows:
1. Employment. Employer hereby engages Employee, and Employee hereby
accepts such engagement, upon the terms and conditions set forth herein.
2. Duties. During the term of this Agreement, Employee shall be
employed as the Employer's President and Chief Executive Officer. Employee shall
faithfully and diligently perform the duties customarily performed by persons in
the position or positions for which Employee is engaged together with such other
reasonable and appropriate duties as Employer shall designate from time to time.
Employee shall devote Employee's full business time and effort to the rendition
of such services and to the performance of such duties. As a full-time employee
of Employer, Employee shall not be entitled to provide consulting services or
other business or scientific services to any other party, without prior written
consent of Employer's Board of Directors (the "Board"). Employee shall be
elected to the Board prior to its next regularly scheduled meeting following the
date of this Agreement.
3. Compensation.
3.1 Base Salary. During the term of this Agreement, as
compensation for the proper and satisfactory performance of all duties to be
performed by Employee hereunder, Employer shall pay to Employee a salary at the
annual rate of Two Hundred Sixty Thousand Dollars ($260,000.00), payable in
accordance with Employee's standard payroll practices, less required deductions
for state and federal withholding tax, Social Security and all other employee
taxes and payroll deductions. Employee's base salary shall be reviewed annually
by the Board and may be increased or decreased in the sole discretion of the
Board.
3.2 Performance Bonuses. At the beginning of each fiscal year of
Employer, Employer and Employee shall reach mutually agreed upon financing and
business objectives for Employer for its upcoming fiscal year which shall be set
forth in writing and approved by the Board. At the end of each such fiscal year,
the Board shall determine, in its reasonable discretion, the size and amount of
Employee's performance bonus, if any, up to a maximum of twenty-five percent
(25%) of Employee's base salary during the prior fiscal year (the "Annual
Performance Bonus"). The Annual Performance Bonus shall be paid to Employee
within sixty (60) days following
<PAGE> 2
Employer's fiscal year end. The first Annual Performance Bonus shall be (i) no
greater than an amount equal to the amount of the maximum Annual Performance
Bonus Employee is entitled to receive multiplied by the quotient of (x) the
number of calendar days during Employer's 1996 fiscal year on which Employee is
an employee of Employer divided by (y) three hundred sixty-five (365); (ii)
based on Employer's 1996 fiscal year achievements; and (iii) paid to Employee by
March 1, 1997.
4. Term of Employment.
4.1 Period of Employment. The Employee's period of employment by
Employer pursuant to this Agreement shall commence on March 25, 1996
("Commencement Date") and end upon the date the employment relationship is
terminated pursuant to Sections 4.2 or 4.3 hereunder (the "Period of
Employment").
4.2 Termination at Will. Although Employer and Employee anticipate
a long and mutually rewarding employment relationship, either party may
terminate this Agreement, without cause, upon fourteen (14) days prior written
notice delivered to the other party. It is expressly understood and agreed that
the employment relationship is "at will," without any agreement for employment
for any specified term, and without any agreement for employment for so long as
Employee performs satisfactorily.
4.3 Termination for Cause. Employer may immediately terminate this
employment relationship "for cause" upon written notice to Employee. For
purposes of this Agreement, "for cause" shall be limited to the following; (i)
Employee's willful misconduct concerning any material responsibility reasonably
assigned to Employee; (ii) without obtaining the prior consent of the Board,
Employee's active and intentional performance of services for any other
corporation or person which competes with Employer or its subsidiaries while
Employee is employed by Employer or its subsidiaries; (iii) the Board reasonably
determines that Employee has stolen or embezzled either funds or property of
Employer; (iv) Employee's conviction by a court of competent jurisdiction of a
felony (other than a traffic or moving violation) involving moral turpitude or
dishonesty; (v) Employee's intentional or grossly negligent conduct or violation
of law which results in either an improper personal benefit to Employee or a
material injury to Employer; or (vi) the death or total disability of Employee.
4.4 Obligations Upon Termination.
4.4.1 Survival of Obligations. The parties' obligations under
Sections 4.4.2, 6, 7, 9.7 and 9.8, shall survive the termination of this
Agreement.
4.4.2 Return of Materials at Termination. Upon termination of
the Period of Employment, Employee will promptly deliver to Employer
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<PAGE> 3
all materials, property, documents, data and other information belonging to
Employer or containing Employer's Trade Secrets or other Protected Information
(each as defined below). Employee shall not take any materials, property,
documents or other information, or any reproduction or excerpt thereof,
belonging to Employer or containing any Trade Secrets or other Protected
Information of Employer.
4.4.3 Resignation. Upon termination of the Period of
Employment, Employee shall be deemed to have resigned from any and all offices
then held with Employer.
4.5 Compensation to Employee on Termination by Employer. In the
event that Employer terminates Employee pursuant to Section 4.2, Employee shall
be entitled to receive an aggregate severance benefit of twelve (12) months of
Employee's then current base salary (as determined pursuant to Section 3.1) and
benefits (as determined pursuant to Section 5) which shall be paid by Employer
to Employee in twelve (12) equal monthly installments until fully paid or until
Employee has secured full-time employment; provided, if Employee secures
full-time employment in which he is paid less per month than the monthly
severance installments payable hereunder or if Employee secures consulting
assignments, Employee shall be entitled to reduced severance benefits from
Employer equal to the difference between the monthly severance payments and the
monthly compensation obtained by Employee pursuant to such full-time employment
or consulting assignments. In the event that Employee elects to receive and does
receive any of the benefits set forth in this Section 4.5, Employee agrees that
such payments shall constitute Employee's sole and exclusive rights and
entitlements in connection with Employee's employment by Employer, the
termination of such employment and any and all matters related to or arising in
connection with such employment, and agrees that his acceptance of any such
payments shall release Employer and any and all affiliated persons and entities
(including all directors, officers, employees and agents) from any claims that
Employee may otherwise have or assert in connection with such matters. If
Employee desires to pursue or enforce any rights, entitlements or remedies that
would otherwise be waived and released, then Employee shall refuse any payments
provided for pursuant to this Section 4.5. If Employee accepts any such
severance payment or payments, he shall be deemed to have agreed to the
foregoing exclusivity of rights and waiver of claims.
5. Benefits.
5.1 Health Insurance, Vacation and Sick Leave. Employee shall be
entitled to Employer's standard benefits package for its executive employees
including, but not limited to, family health care insurance, officer and
director liability insurance (when obtained for Employer's other officers and/or
directors), vacation and sick leave (the "Fringe Benefits"). Employer agrees to
pay Employee's monthly COBRA continuation policy premiums until Employer's own
health care program is instituted for
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<PAGE> 4
Employer's employees. Employer reserves the right to change such benefits from
time to time in its sole discretion.
5.2 Life Insurance. In addition to Employee's standard Employer
provided life insurance policy, provided that Employee is insurable at
commercially reasonable rates, Employer shall obtain and maintain, during the
term of this Agreement and any extension thereof, a term life insurance policy
on the Employee's life in an amount no less than One Million Dollars
($1,000,000) (the "Life Insurance Policy"). Employer shall pay the premiums and
Employee shall designate the beneficiary of the Life Insurance Policy.
5.3 Accumulation. Employee shall not earn and accumulate unused
vacation and sick leave, or other Fringe Benefits, in excess of an unused amount
equal to the amount earned for one (1) year. Furthermore, Employee shall not be
entitled to receive payments in lieu of said Fringe Benefits, other than for
unused vacation earned and accumulated at the time the employment relationship
terminates. All unused sick leave and other Fringe Benefits earned during the
preceding twelve (12) month period ending on each anniversary of the date of
this Agreement shall be forfeited if not used within ninety (90) days following
such anniversary date. Notwithstanding the foregoing, if Employer adopts a more
favorable accumulation policy for its executives, Employee shall be entitled to
the benefits of such more favorable accumulation policy.
5.4 Disability Benefits. Employer shall use its commercially
reasonable efforts to help Employee secure long-term disability insurance.
Employee shall pay the premiums associated with any such insurance.
6. Inventions, Trade Secrets and Confidentiality.
6.1 Definitions.
6.1.1 Invention Defined. As used herein "Inventor" means
inventions, discoveries, concepts, and ideas, whether patentable or
copyrightable or not, including but not limited to processes, methods, formulas,
techniques, devices, designs, programs (including computer programs), computer
graphics, apparatus, products, as well as improvements thereof or know-how
related thereto, relating to any present or anticipated business or activities
of Employer.
6.1.2 Trade Secret Defined. As used herein "Trade Secret"
means, without limitation, any document or information relating to Employer's
products, processes or services, including documents and information relating to
Inventions, and to the research, development, engineering or manufacture of
Inventions, and to Employer's purchasing, customer or supplier lists and pricing
policies, which documents or
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information have been disclosed to Employee or known to Employee as a
consequence of or through Employee's employment by Employer (including
documents, information or Inventions conceived, originated, discovered or
developed by Employee), which is not generally known in the relevant trade or
industry.
6.1.3 Protected Information Defined. As used herein "Protected
Information" means, without limitation, all trade secrets, confidential or
proprietary information, and all other knowledge, data, know-how, processes,
information, documents or materials, owned, developed or possessed by Employer,
whether in tangible or intangible form, the confidentiality of which Employer
takes reasonable measures to protect, and which pertains in any manner to
subjects which include, but are not limited to, Employer's research operations,
customers (including identities of customers and prospective customers,
identifies of individual contacts at business entities which are customers or
prospective customers, preferences, businesses or habits), business
relationships, engineering data or results, specifications, concepts, methods,
processes, rates or schedules, customer or vendor information, products
(including prices, costs, sales or content), financial information or measures,
business methods, future business plans, data bases, computer programs, designs,
models, operating procedures, and knowledge of the organization.
6.2 Inventions.
6.2.1 Disclosure. Employee shall disclose promptly to Employer
each Invention, whether or not reduced to practice, which is conceived or
learned by Employee (either alone or jointly with others) during the Period of
Employment. Employee shall disclose in confidence to Employer all patent
applications filed by or on behalf of Employee during the Period of Employment
and for a period of one (1) year thereafter. Any disclosure of any Invention, or
any patent application, made within one (1) year after termination of employment
shall be presumed to relate to an Invention made during Employee's Period of
Employment, unless Employee clearly proves otherwise.
6.2.2 Employer Property; Assignment. Except as otherwise
provided in Section 6.2.3, Employee acknowledges and agrees that all Inventions
which are discovered, conceived, developed, made, produced or prepared by
Employee (alone or in conjunction with others) during the Period of Employment
shall be the sole property of Employer. Said property rights of Employer include
without limitation all domestic and foreign patent rights, rights of
registration or other protection under the patent and copyright laws, and all
other rights pertaining to the Inventions. Employee further agrees that all
services, products and Inventions that directly or indirectly result from
engagement with Employer shall be deemed "works for hire" as that term is
defined in Title 17 of the United States Code and accordingly all rights
associated therewith shall vest in Employer. Notwithstanding the foregoing,
Employee hereby assigns to Employer
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<PAGE> 6
all of Employee's right, title and interest in any such services, products and
Inventions, in the event any such services, products and Inventions shall be
determined not to constitute "works for hire."
6.2.3 Exclusion Notice. The assignment by Employee of
Inventions under this Agreement does not apply to any Inventions which are owned
or controlled by Employee prior to the commencement of employment of Employee by
Employer (all of which are set forth on Exhibit "A" hereto). Additionally,
Employee is not required to assign an idea or invention where the idea or
invention meets all of the following criteria, namely the invention or idea: (i)
was created or conceived without the use of any of Employer's equipment,
supplies, facilities, or trade secret information, and (ii) was developed
entirely on Employee's own time, and (iii) does not relate to the business of
Employer, and (iv) does not relate to Employer's actual or demonstrably
anticipated research or development, and (v) does not result from any work
performed by Employee for Employer. Employee has reviewed the notification in
this Section 6.2.3 and in Exhibit B ("Limited Exclusion Notification") and
agrees that Employee's signature on the Limited Exclusion Notification
acknowledges receipt of the notification.
6.2.4 Patents and Copyrights; Attorney-in-Fact. Both before
and after termination of this Agreement (and with reasonable compensation paid
by Employer to Employee after termination), Employee agrees to assist Employer
to apply for, obtain and enforce patents on, and to apply for, obtain and
enforce copyright protection and registration of, the Inventions described in
Section 6.2.2 in any and all countries. To that end, Employee shall (at
Employer's request) without limitation, testify in any proceeding and execute
any documents and assignments determined to be necessary or convenient for use
in applying for, obtaining, registering and enforcing patent or copyright
protection involving any of the Inventions. Employee hereby irrevocably appoints
Employer, and its duly authorized officers and agents, as Employee's agent, and
attorney-in-fact to act for and in behalf of Employee in filing all patent
applications, applications for copyright protection and registration,
amendments, renewals, and all other appropriate documents in any way related to
the Inventions described in Section 6.2.2.
6.3 Trade Secrets.
6.3.1 Acknowledgement of Proprietary Interest. Employee
recognizes the proprietary interest of Employer in any Trade Secrets of
Employer. Employee acknowledges and agrees that any and all Trade Secrets of
Employer, whether developed by Employee alone or in conjunction with others or
otherwise, shall be and are the property of Employer.
6.3.2 Covenant not to Divulge Trade Secrets. Employee
acknowledges and agrees that Employer is entitled to prevent the disclosure of
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Employer's Trade Secrets or Protected Information. As a portion of the
consideration for the employment of Employee and for the compensation being paid
to Employee by Employer, Employee agrees at all times during the Period of
Employment and thereafter to hold in strictest confidence, and not to use,
disclose or allow to be disclosed to any person, firm, or corporation, without
Employer's express prior written consent, Employer's Trade Secrets or Protected
Information, including Trade Secrets developed by Employee, other than
disclosures to persons who have entered into confidentiality agreements with
Employer.
6.3.3 Confidential Information of Others. Employee represents
and warrants that if Employee has any confidential information belonging to
others, Employee will not use or disclose to Employer any such information or
documents. Employee represents that his employment with Employer will not
require him to violate any obligation to or confidence with any other party.
6.4 No Adverse Use. Employee will not at any time during Period of
Employment or thereafter use Employer's Trade Secrets, Protected Information or
Inventions in any manner which may directly or indirectly have an adverse effect
upon Employer's business, nor will Employee perform any acts which would tend to
reduce Employer's proprietary value in Employer's Trade Secrets, Protected
Information or Inventions.
6.5 Remedies Upon Breach. In the event of any breach by Employee
of this Section 6, Employer shall be entitled, if it so elects, to institute and
prosecute proceedings in any court of competent jurisdiction, either in law or
in equity, to enjoin Employee from violating any of the terms of this Section 6,
to enforce the specific performance by Employee of any of the terms of this
Section 6, and to obtain damages, or any of them, but nothing herein contained
shall be construed to prevent such remedy or combination of remedies as Employer
may elect to invoke. The failure of Employer to promptly institute legal action
upon any breach of this Section 6 shall not constitute a waiver of that breach
or any other breach hereof.
7. Non-Compete and Non-Solicitation Covenants. In further consideration
of the compensation to be paid to Employee hereunder, Employee agrees that,
during Employee's employment, Employee will not directly or indirectly compete
with Employer in any way, and that Employee will not act as an officer,
director, employee, consultant, lender, agent or owner of any interest in any
other entity which is engaged in any business which is of the same nature as,
which is in competition with, or which is involved in science or technology
which is similar to the businesses in which Employer or its subsidiaries (i) are
now engaged, (ii) become engaged in during the term of Employee's employment or
(iii) plan to become engaged in prior to the date of Employee's termination.
During Employee's employment and for a period of one (1) year thereafter,
Employee shall not directly or indirectly through another entity (x)
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<PAGE> 8
induce or attempt to induce any employee of Employer or any subsidiary of
Employer to leave the employ of Employer or such subsidiary, or in any way
interfere with the relationship between the Employer or any subsidiary and the
employee thereof; (y) hire any person who is an employee of Employer or any
subsidiary at any time, provided, however, that Employee may hire those
employees who were directly and actively recruited by Employee, on Employer's
behalf, to become employees of Employer; or (z) induce or attempt to induce any
customer, supplier, licensee, licensor or other party which as a contractual
relationship with Employer or its subsidiaries or affiliates to cease doing
business with Employer or any such subsidiary (including, without limitation,
making any negative statements or communications about Employer or its
affiliates).
8. Additional Rights.
8.1 Option to Purchase Common Stock. At the first meeting of the
Board to occur after the execution of this Agreement, Employer shall grant to
Employee an option to purchase up to One Million Six Hundred Eighty Thousand
(1,680,000) restricted shares of Employer's Common Stock at seven and one-half
cents ($0.075) per share (the "Common Shares"). Such number of shares of Common
Stock shall constitute six percent (6%) of the fully-diluted shares of capital
stock of Employer taking into account the proposed issuance and sale of
additional shares of Series C Preferred Stock scheduled to occur no later than
June 1996 (the "Second Closing"). The Common Shares shall be vested under the
option as follows: (i) ten percent (10%) shall vest as of the Commencement Date;
(ii) an additional fifteen percent (15%) shall vest as of the first anniversary
of the Commencement Date provided Employee is employed by Employer on such
anniversary; and (iii) one-thirty-sixth (1/36) of the remaining unvested Common
Shares shall thereafter vest in a series of successive monthly installments at
the end of each month for so long as Employee is employed by Employer. On the
fourth (4th) anniversary of the Commencement Date, the Common Shares shall all
be vested. The option agreement (the "Option Agreement") shall also provide that
in the event of (A) any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation) in
which more than fifty percent (50%) of Employer's outstanding voting stock is
transferred to a person or persons different from those who held the stock
immediately prior to such transaction, or (B) the sale, transfer or other
disposition of all or substantially all of Employer's assets ("Change in
Control"), Employee shall be entitled to exercise the option for that number of
Common Shares equal to the sum of (y) that number of Common Shares which are
vested as of the date of the Change in Control and (z) that number of Common
Shares equal to forty percent (40%) of the unvested Common Shares as of the date
of the Change of Control.
8.2 Right of First Offer to Maintain Pro-Rata Interest. Employee
shall have the assignable right, during the term of this Agreement, to purchase
a pro rata share of New Securities (as defined below) which Employer may, from
time to time, propose to sell and issue on the same terms and conditions which
such New
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<PAGE> 9
Securities are offered. Employee's pro rata share, for purposes of this right,
is the ratio of the number of shares of Common Stock owned by Employee
immediately prior to the issuance of New Securities, assuming conversion and/or
exercise of any convertible or exercisable securities into shares of Employer's
Common Stock, to the total number of shares of Common Stock outstanding
immediately prior to the issuance of New Securities, assuming conversion and/or
exercise of all outstanding rights, options and warrants to acquire Common Stock
of Employer. "New Securities" shall mean any capital stock (including Common
Stock and/or Preferred Stock) of Employer whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock
issued or sold in a financing of Employer, the principal purpose of which is
raise equity capital for Employer; provided that the term "New Securities" does
not include (i) any borrowings, direct or indirect, from financial institutions
or other persons by Employer, whether or not presently authorized, including any
type of loan or payment evidenced by any type of debt instrument, provided such
borrowings do not have any equity features including warrants, options or other
rights to purchase capital stock and are not convertible into capital stock of
Employer; (ii) securities issued to employees, consultants, officers or
directors of Employer pursuant to any stock option, stock purchase or stock
bonus plan, agreement or arrangement approved by the Board of Directors; (iii)
securities issued pursuant to transactions involving technology licensing,
research or development activities or the distribution or manufacture of
Employer's products, provided that each of the foregoing transactions is
primarily for non-equity financing purposes and the aggregate value of
securities issued in each such transaction is less than $5.0 million; (iv)
securities issued in connection with obtaining lease financing, whether issued
to a lessor, guarantor or other person; (v) securities issued in a firm
commitment underwritten public offering pursuant to a registration under the
Securities Act; and (vi) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of New Securities
pursuant to subsections (i) through (v) above.
8.3 Purchase Following Next Preferred Stock Financing. Employee
(or Employee's designee) shall have the right, but not the obligation, to
purchase that number of fully paid (subject to the financing arrangements
discussed below) and nonassessable shares of Employer's Common Stock ("Common
Shares") as is equal to: (a) Ninety-Six Thousand Dollars ($96,000.00) divided by
(b) the per share price at which the next preferred equity security of Employer
sold after the Second Closing (the "New Preferred") is sold to third party
investors; provided, however, that in the event the Company has not closed the
issuance and sale of any shares of the New Preferred prior to September 15,
1996, (b) shall be deemed to be $1.50 and the number of Common Shares to be
issued hereunder shall be 64,000. Notwithstanding the foregoing, if the issuance
and sale of the New Preferred occurs in connection with a transaction described
in (i) or (ii) below, and Employer and the third party entering into such
transaction mutually so determine, such issuance and sale of a preferred equity
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<PAGE> 10
security shall not be deemed an issuance and sale of New Preferred: (i) any
arrangement between Employer and any third party for any research or development
involving Employer (including, without limitation, any arrangement that includes
provision for research support, product development and/or testing support) or
(ii) any rights to commercialize any products resulting from the research or
development programs of Employer (including, without limitation, rights to
develop, make, use and/or sell any such products). Employee shall have no right
to negotiate any of the terms or conditions upon which the New Preferred will be
issued (other than on behalf of Employer), which negotiation shall be conducted
solely among Employer and the other purchasers of the New Preferred. The
issuance of the Common Shares by Employer pursuant to this Section 8.3 shall be
effected as follows, in Employee's discretion: (i) issuance of the Common Shares
with the aggregate purchase price paid through a forgivable loan by Employer to
Employee in the amount of the aggregate purchase price of the Common Shares
calculated using the then-current fair market value for Employer's Common Stock
(provided the Common Shares issued pursuant to such a loan shall not be
fully-paid unless and until such loan is forgiven in whole), (ii) through the
one-time bonus of the Common Shares to Employee or (iii) through the one-time
bonus of the aggregate amount of the purchase price necessary to purchase the
Common Shares calculated using the then-current fair market value for Employer's
Common Stock.
9. General Provisions.
9.1 Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in writing and signed by both
parties hereto. There shall be no implied-in-fact contracts modifying the terms
of this Agreement.
9.2 Entire Agreement. This Agreement, and the exhibits attached
hereto, constitutes the entire agreement between the parties with respect to the
employment of Employee. This Agreement supersedes all prior agreements,
understandings, negotiations and representation with respect to the employment
relationship between Employer and Employee.
9.3 Successors and Assigns. The rights and obligations of Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Employer. Employee shall not be entitled to assign any
of Employee's rights or obligations under this Agreement.
9.4 Waiver. Either party's failure to enforce any provision of
this Agreement shall not in any way be construed as a waiver of any such
provision, or prevent that party thereafter from enforcing each and every other
provision of this Agreement.
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<PAGE> 11
9.5 Severable Provisions. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be judicially
unenforceable, in whole or in part, the remaining provisions shall nevertheless
be binding and enforceable.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same Agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
9.7 Choice of Law. This Agreement shall be governed and construed
in accordance with the internal laws of California without regard to its
conflicts of laws principles.
9.8 Jurisdiction and Venue. In the event that any legal
proceedings are commenced in any court with respect to any matter arising under
this Agreement, Employer and Employee specifically consent and agree that the
courts of the State of California and/or the United States Federal Courts
located in the State of California shall have exclusive jurisdiction over each
of the Parties and such proceedings.
9.9 Drafting Party. The provisions of this Agreement, and the
documents and instruments referred to herein, have been examined, negotiated,
drafted and revised by counsel for each party hereto and no implication shall be
drawn nor made against any party hereto by virtue of the drafting of this
Agreement.
10. Employee's Representations. Employee represents and warrants that
Employee (i) is free to enter into this Agreement and to perform each of the
terms and covenants contained herein, (ii) is not restricted or prohibited,
contractually or otherwise, from entering into and performing this Agreement,
and (iii) will not be in violation or breach of any other agreement by reason of
Employee's execution and performance of this Agreement.
11. REPRESENTATION. BY EXECUTING THIS AGREEMENT, EMPLOYEE ACKNOWLEDGES
AND AGREES THAT BROBECK, PHLEGER & HARRISON LLP REPRESENTS EMPLOYER SOLELY AND
THAT EMPLOYEE HAS HAD AN OPPORTUNITY TO CONSULT WITH HIS OWN ATTORNEY AND TAX
ADVISOR IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREIN. NEITHER EMPLOYER NOR ITS COUNSEL EXPRESSES ANY OPINION AS TO THE
ENFORCEABILITY OF THE TERMS AND CONDITIONS OF THIS AGREEMENT.
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
EMPLOYER:
COMBICHEM, INC., a California corporation
By: /s/ Pierre R. Lamond
-------------------------------------
Pierre R. Lamond
Chairman of the Board
EMPLOYEE:
VICENTE ANIDO, JR.
/s/ Vicente Anido
-----------------------------------------
(Signature)
Address: 1621 Bayside Dr.
-----------------------------------------
Corona del Mar, CA 92625
-----------------------------------------
[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]
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EXHIBIT A
LIST OF PRIOR INVENTIONS
(Section 6.2.3)
None, other than the following: __________________________________________
________________________________________________________________________________
___________________________________________________________________________.
A-1
<PAGE> 14
EXHIBIT B
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and Employer does not
require you to assign or offer to assign to Employer any invention that you
developed entirely on your own time without using Employer's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
(1) Relate at the time of conception or reduction to practice of the
invention to Employer's business, or Employer's actual or demonstrably
anticipated research or development; or
(2) Result from any work performed by you for Employer.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered
by a contract between Employer and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By:/s/ Vicente Anido
--------------------------------------
Vicente Anido, Jr.
Dated:3-14-96
Witnessed by:
/s/ Pierre Chambon
- ------------------------------------
P. Chambon
- ------------------------------------
(Printed Name of Witness)
Dated: 3-14-96
-----------------------------
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<PAGE> 1
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of May
13th, 1996, by and between CombiChem, Inc., a California corporation
("Employer") and Lee R. MCCracken ("Employee").
NOW, THEREFORE, the parties agree as follows:
1. Employment. Employer hereby engages Employee, and Employee hereby
accepts such engagement, upon the terms and conditions set forth herein.
2. Duties. During the term of this Agreement, Employee shall be
employed as the Employer's Vice President, Business Development reporting to
Employer's Chief Executive Officer. Employee shall faithfully and diligently
perform the duties customarily performed by persons in the position or positions
for which Employee is engaged together with such other reasonable and
appropriate duties as Employer shall designate from time to time. Employee shall
devote Employee's full business time and effort to the rendition of such
services and to the performance of such duties. As a full-time employee of
Employer, Employee shall not be entitled to provide consulting services or other
businesses or scientific services to any other party, without the prior written
consent of Employer.
3. Compensation.
3.1 Base Salary. During the term of this Agreement, as
compensation for the proper and satisfactory performance of all duties to be
performed by Employee hereunder, Employer shall pay to Employee an annual salary
of One Hundred and Forty-Five Thousand Dollars ($145,000) payable in accordance
with Employee's standard payroll practices, less required deductions for state
and federal withholding tax, Social Security and all other employee taxes and
payroll deductions. Employee's base salary shall be reviewed annually by the
Compensation Committee and any increase or decrease in Employee's base salary
will be based on recommendations from the President and Chief Executive Officer.
3.2 Signing Bonus. In order to induce Employee to enter into this
Agreement, Employer shall pay to Employee a signing bonus in the amount of Ten
Thousand Dollars ($10,000), payable on or before May 31, 1996, less required
deductions for state and federal withholding tax, Social Security and all other
employee taxes and payroll deductions.
3.3 Annual Bonus. At the beginning of each fiscal year, Employer
and Employee shall reach mutually agreed upon objectives for Employee for its
upcoming fiscal year which shall be set forth in writing and approved by the
Board. At the end of each such fiscal year, the Board shall determine, in its
reasonable discretion, the size and amount of Employee's performance bonus, if
any, up to a maximum of twenty percent (20%) of
<PAGE> 2
Employee's base salary during the prior fiscal year (the "Annual Performance
Bonus"). The Annual Performance Bonus shall be paid to Employee within sixty
(60) days following Employer's fiscal year end. The first Annual Performance
Bonus shall be (i) based on Employee's 1996 fiscal year achievements; (ii) paid
to Employee by March 1, 1997; and (iii) pro-rated in accordance with the months
for which Employee is engaged by Employer; provided that employee's employment
has continued through the end of 1996.
4. Term of Employment.
4.1 Period of Employment. The Employee's period of employment by
Employer pursuant to this Agreement shall commence on May 13, 1996
("Commencement Date") and end upon the date the employment relationship is
terminated pursuant to Sections 4.2 or 4.3 hereunder (the "Period of
Employment").
4.2 Termination at Will. Although Employer and Employee anticipate
a long and mutually rewarding employment relationship, either party may
terminate this Agreement, without cause, upon fourteen (14) days prior written
notice delivered to the other party. It is expressly understood and agreed that
the employment relationship is "at will" without any agreement for employment
for any specified term, and without any agreement for employment for so long as
Employee performs satisfactorily, subject to Employers obligations in the
following paragraph.
In the event that Employee's employment ceases pursuant to this
Section of this Agreement, Employer shall continue to pay Employee his monthly
salary then in effect and Employee shall be entitled to the benefits contained
in Section 5 of this Agreement, in both cases, for a period of nine (9) months
following such cessation of employment.
4.3 Termination for Cause. Employer may immediately terminate
this employment relationship "for cause" upon written notice to Employee. For
the purposes herein, "for cause" shall be limited to the following: (i)
Employee's willful misconduct concerning any material responsibility reasonably
assigned to Employee; (ii) without obtaining the prior consent of the CEO and/or
the Board, Employee's active and intentional performance of services for any
other corporation or person which competes with Employer or its subsidiaries
while Employee is employed by Employer or its subsidiaries; (iii) the Board
and/or CEO reasonably determines that Employee has stolen or embezzled either
funds or property of Employer; (iv) Employee's conviction by a court of
competent jurisdiction of a felony (other than a traffic or moving violation)
involving moral turpitude or dishonesty; (v) Employee's intentional or grossly
negligent conduct or violation of law which results in either an improper
personal benefit to Employee or a material injury to Employer; or (vi) the death
or total disability of Employee. For the purposes of this agreement, total
disability shall mean any physical or mental illness or disability which
continues for a period of 180 consecutive days and which any time after such 180
day period the President & CEO shall
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determine renders Employee incapable of performing managerial and executive
services required by this agreement. Such determination shall be made by the
President & CEO after consultation by a licensed physician.
4.4 Obligations Upon Termination.
4.4.1 Survival of Obligations. The parties' obligations under
Section 4.2, 4.4.2, 6, 7, 9.7 and 9.8, shall survive the termination of this
Agreement.
4.4.2 Return of Materials at Termination. Upon termination of
the Period of Employment, the Employee will promptly deliver to Employer all
materials, property, documents, data and other information belonging to Employer
or containing Employer's Trade Secrets or other Protected Information (each as
defined herein). The Employee shall not take any materials, property, documents
or other information, or any reproduction or excerpt thereof, belonging to
Employer or containing any Trade Secrets or other Protected Information of
Employer.
4.4.3 Resignation. Upon termination of the Period of
Employment, the Employee shall be deemed to have resigned from any and all
offices then held with the Employer.
5. Benefits
5.1 Health Insurance, Vacation and Sick Leave. Employee shall be
entitled to Employer's standard benefits package for its executive employees
including, but not limited to, family health care insurance, key-person life
insurance in an amount equal to twice the amount of Employee's base salary,
officer and director liability insurance (when obtained for Employer's other
officers), long-term disability (when obtained for Employer's other officers),
vacation and sick leave (the "Fringe Benefits"). Employer reserves the right to
change such benefits from time to time.
5.2 Accumulation. Employee shall not earn and accumulate unused
vacation and sick leave, or other Fringe Benefits, in excess of an unused amount
equal to the amount earned for one year. Furthermore, Employee shall not be
entitled to receive payments in lieu of said Fringe Benefits, other than for
unused vacation earned and accumulated at the time the employment relationship
terminates. All unused sick leave and other Fringe Benefits earned during the
preceding twelve (12) month period ending on each anniversary of the date of
this Agreement shall be forfeited if not used within ninety (90) days following
such anniversary date. Notwithstanding the forgoing, if Employer adopts a more
favorable accumulation policy for its executives, Employee shall be entitled to
the benefits of such more favorable accumulation policy.
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<PAGE> 4
5.3 Personal Leave. Employee shall accrue fifteen (15) days of
personal leave during each year of his employment. Upon accrual of fifteen (15)
days of unused personal leave, no additional personal leave time will accrue
until Employee has used some of his accrued personal leave time and has reduced
the amount of accrued time below fifteen (15) days. Once Employee has taken
personal leave and his accrued personal leave time has dropped below fifteen
(15) days, Employee shall begin to accrue personal leave time again (at the rate
of fifteen (15) days per year), up to the maximum of fifteen (15) days.
Notwithstanding the foregoing, if Employer adopts a more favorable personal
leave policy for its executives, Employee shall be entitled to the benefits of
such more favorable personal leave policy.
5.4 Transitional Expenses. From the Commencement Date through the
earlier of (a) the one year anniversary of the Commencement Date or as extended
with prior approval of the President & CEO or (b) the date Employee relocates
Employee's principal residence to San Diego County or the Southern Orange County
area, Employer shall reimburse Employee for the first One Thousand Two Hundred
Dollars ($1,200) ("Monthly Transitional Budget") reasonably incurred by Employee
in establishing a secondary residence in San Diego County in any given month. In
any given month that the Monthly Transitional Budget is not fully expended, the
unused portion may be carried over to a following month with the prior approval
of the President & CEO. The Employee hereby acknowledges that the Radisson Hotel
is Employer's preferred choice for lodging for two nights per week at a current
negotiated rate of Seventy-Five Dollars ($75.00) per night. Any allowance paid
pursuant to this Section 5.4 shall be "grossed up" to cover Employee's local,
state and federal income tax liability at Employee's then current marginal tax
rate if deemed necessary by Employer's accountants. The tax gross-up payment(s)
shall initially be calculated at an assumed effective marginal rate of forty
percent (40%) and paid to Employee no later than (i) April 15 of the calendar
year following any year Employee has expenses reimbursed pursuant to this
Section; and (ii) any date Employee is required to make increased quarterly
estimated payments due to Employee's receipt of the allowance payments pursuant
to this Section. Once Employee has finalized Employee's federal and state income
tax returns, Employee's effective marginal rate shall be calculated and any
shortfall or overpayment will be corrected.
5.5 Relocation Expenses. Employer shall reimburse Employee the
following expenses: (a) selling expenses related to sale of Employee's current
residence in Long Beach, California, including realtor commissions and closing
expenses typically paid by sellers; (b) reasonable relocation/moving expenses
incurred in the move to San Diego County or Southern Orange County; and (c) a
tax gross-up payment calculated at an assumed effective marginal rate of forty
percent (40%) to cover Employee's income tax liability for expenses reimbursed
pursuant to subsections (a) and (b) of this Section. Expenses related to
subsections (a) and (b) shall be reimbursed within thirty (30) days after
Employee submits adequate verification of incurred expenses. The tax gross-up
bonus related to subsection (c)
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<PAGE> 5
shall be paid to Employee no later than (i) April 15 of the calendar year
following any year Employee has expenses reimbursed pursuant to this Section;
and (ii) any date Employee is required to make increased quarterly estimated
payments due to Employee's receipt of reimbursed expenses pursuant to
subsections (a) or (b) of this Section. Once Employee has finalized Employee's
federal and state income tax returns, Employee's effective marginal rate shall
be calculated and any shortfall or overpayment will be corrected. Employer
estimates that its obligations pursuant to this Section 5.5 prior to the tax
gross-up bonus related to (c) shall be approximately Fifty Thousand Dollars
($50,000). Notwithstanding the foregoing, in the event that Employee is not
employed by Employer for a period of time lasting at least twelve (12) months
following the date on which Employee moves to San Diego County or Southern
Orange County, excluding change of control, Employee shall upon termination of
employment (whether for cause or otherwise) reimburse Employer, over a 24-month
period, for any and all amounts paid to Employee pursuant to this Section 5.5.
6. Inventions, Trade Secrets and Confidentiality.
6.1 Definitions.
6.1.1 Invention Defined. As used herein "Invention" means
inventions, discoveries, concepts and ideas, whether patentable or copyrightable
or not, including, but not limited to, processes, methods, formulas, techniques,
devices, designs, programs (including computer programs), computer graphics,
apparatus, products as well as improvements thereof or know-how related thereto,
relating to any present or anticipated business or activities of Employer.
6.1.2 Trade Secrets Defined. As used herein "Trade Secret"
means, without limitation, any document or information relating to Employer's
products, processes or services, including documents and information relating to
Inventions, and to the research, development, engineering or manufacture of
Inventions, and to Employer's purchasing, customer or supplier lists and pricing
policies, which documents or information have been disclosed to Employee or
known to Employee as a consequence of or through Employee's employment by
Employer (including documents, information or Inventions conceived, originated,
discovered or developed by Employee), which is not generally known in the
relevant trade or industry.
6.1.3 Protected Information. As used in this Agreement, the
term "Protected Information" shall mean, without limitation, all trade secrets,
confidential or proprietary information, and all other knowledge, data,
know-how, processes, information, document or materials, owned, developed or
possessed by Employer, whether in tangible or intangible form, the
confidentiality of which Employer takes reasonable measures to protect, and
which pertains in any manner to subjects which include, but are not limited to,
Employer's research operations, customers, identities of individual contacts at
business entities
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<PAGE> 6
which are customers or prospective customers, preferences, businesses or habits,
business relationships, engineering data or results, specifications, concepts,
methods, processes, rates or schedules, customer or vendor information, products
(including, but not limited to, prices, costs, sales or content), financial
information or measures, business methods, future business plans, databases,
computer programs, designs, models, operating procedures and knowledge of the
organization.
6.2 Inventions.
6.2.1 Disclosure. Employee shall disclose promptly to Employer
each Invention, whether or not reduced to practice, which is conceived or
learned by Employee (either alone or jointly with others) during the Period of
Employment. Employee shall disclose in confidence to Employer all patent
applications filed by or on behalf of Employee during the Period of Employment
and for a period of one (1) year thereafter. Any disclosure of any Invention, or
any patent application, made within one (1) year after termination of employment
shall be presumed to relate to an Invention made during Employee's Period of
Employment, unless Employee clearly proves otherwise.
6.2.2 Employer Property; Assignment. Except as otherwise
provided in Section 6.2.3, Employee acknowledges and agrees that all Inventions
which are discovered, conceived, developed, made, produced or prepared by
Employee (alone or in conjunction with others) during the Period of Employment
shall be the sole property of Employer. Said property rights of Employer include
without limitation all domestic and foreign patent rights, rights of
registration or other protection under the patent and copyright laws, and all
other rights pertaining to the Inventions. Employee further agrees that all
services, products and Inventions that directly or indirectly result from
engagement with Employer shall be deemed "works for hire" as that term is
defined in Title 17 of the United States Code and accordingly all rights
associated therewith shall vest in Employer. Notwithstanding the foregoing,
Employee hereby assigns to Employer all of Employee's right, title and interest
in any such services, products and Inventions, in the event any such services,
products and Inventions shall be determined not to constitute "works for hire."
6.2.3 Exclusion Notice. The assignment by Employee of
Inventions under this Agreement does not apply to any Inventions which are owned
or controlled by Employee prior to the commencement of employment of Employee by
Employer (all of which are set forth on Exhibit "A" attached hereto).
Additionally, Employee is not required to assign an idea or invention where the
idea or invention meets all of the following criteria, namely if the invention
or idea: (i) was created or conceived without the use of any of Employer's
equipment, supplies, facilities or trade secret information, and (ii) was
developed entirely on Employee's own time, and (iii) does not relate to the
business of Employer, and (iv) does not relate to Employer's actual or
demonstrably anticipated research or development, and (v) does not result from
any work performed by Employee for Employer. Employee has
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<PAGE> 7
reviewed the notification in this Section 6.2.3 and in Exhibit "B" ("Limited
Exclusion Notification") and agrees that Employee's signature on the Limited
Exclusion Notification acknowledges receipt of the notification.
6.2.4 Patents and Copyrights; Attorney-in-Fact. Both before
and after termination of this Agreement (and with reasonable compensation paid
by Employer to Employee after termination), Employee agrees to assist the
Employer to apply for, obtain and enforce patent and/or copyright protection and
registration of, the Inventions described in Section 6.2.2 in any and all
countries. To that end, Employee shall (at Employer's request), without
limitation, testify in any proceeding, and execute any documents and assignments
determined to be necessary or convenient for use in applying for, obtaining,
registering and enforcing patent or copyright protection involving any of the
Inventions. Employee hereby irrevocably appoints Employer, and its duly
authorized officers and agents, as Employee's agent and attorney-in-fact to act
for and on behalf of Employee in filing all patent applications, applications
for copyright protection and registration, amendments, renewals and all other
appropriate documents in any way related to the Inventions described in Section
6.2.2.
6.3 Trade Secrets.
6.3.1 Acknowledgment of Proprietary Interest. Employee
recognizes the proprietary interest of Employer in any Trade Secrets of
Employer. Employee acknowledges and agrees that any and all Trade Secrets of
Employer, whether developed by Employee alone or in conjunction with others or
otherwise, shall be and are the property of Employer.
6.3.2 Covenant Not to Divulge Trade Secrets. Employee
acknowledges and agrees that Employer is entitled to prevent the disclosure of
Employer's Trade Secrets or Protected Information. As a portion of the
consideration for the employment of Employee and for the compensation being paid
to Employee by Employer, Employee agrees at all times during the Period of
Employment by Employer and thereafter to hold in strictest confidence, and not
to use, disclose or allow to be disclosed to any person, form or corporation,
Employer's Trade Secrets or Protected Information, including Trade Secrets
developed by Employee, other than disclosures, with Employer's express prior
written consent, to persons who have entered into confidentiality agreements
with Employer.
6.3.3 Confidential Information of Others. Employee represents
and warrants that if Employee has any confidential information belonging to
others, Employee will not use or disclose to Employer any such information or
documents. Employee represents that his employment with Employer will not
require him to violate any obligation to or confidence with any other party.
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<PAGE> 8
6.4 No Adverse Use. Employee will not at any time during the
Period of Employment or thereafter use Employer's Trade Secrets, Protected
Information or Inventions in any manner which may directly or indirectly have an
adverse effect upon Employer's business, nor will Employee perform any acts
which would tend to reduce Employer's proprietary value in Employer's Trade
Secrets, Protected Information or Inventions.
6.5 Remedies Upon Breach. In the event of any breach by Employee
of the provisions in this Section 6, Employer shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to enjoin Employee from violating any
of the terms of this Section 6, to enforce the specific performance by Employee
of any of the terms of this Section 6, and to obtain damages, or any of them,
but nothing herein contained shall be construed to prevent such remedy or
combination of remedies as Employer may elect to invoke. The failure of Employer
to promptly institute legal action upon any breach of this Section 6 shall not
constitute a waiver of that breach or any other breach hereof.
7. Covenant Not to Compete. Employee agrees that, during Employee's
employment, Employee will not directly or indirectly compete with Employer in
any way, and that Employee will not act as an officer, director, employee,
consultant, shareholder, lender or agent of any other entity which is engaged in
any business of the same nature as, or in competition with, the business in
which Employer is now engaged or in which Employer becomes engaged during the
term of Employee's employment, or which is involved in science or technology
which is similar to Employer's science or technology. During Employee's
employment, and for a period of one (1) year thereafter, Employee shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of Employer or any subsidiary of Employer to leave the employ of
Employer or such subsidiary, or in any way interfere with the relationship
between the Employer or any subsidiary at any time; or (ii) induce or attempt to
induce any customer, supplier, licensee, licensor or other party which has a
contractual relationship with Employer or its subsidiaries or affiliates to
cease doing business with Employer or any such subsidiary (including, without
limitation, making any negative statements or communications about Employer or
its affiliates).
8. Stock Options. Simultaneous with the execution of this Agreement,
Employer and Employee will enter into a written stock option agreement
substantially in the form attached hereto as Exhibit C, pursuant to which
Employee will be granted an incentive stock option for 290,000 shares of the
Company's Common Stock, exercisable at $0.075 per share and vesting twenty-five
percent (25%) as of the first anniversary of the Commencement Date and in equal
monthly installments thereafter.
9. General Provisions.
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<PAGE> 9
9.1 Amendments. No amendment or modification of the terms or
conditions of this Agreement shall be valid unless in writing and signed by both
parties hereto. There shall be no implied-in-fact contracts modifying the terms
of this Agreement.
9.2 Entire Agreement. This Agreement and the Exhibits attached
hereto constitute the entire agreement between the parties with respect to the
employment of Employee.
This Agreement supersedes all prior agreements, understandings,
negotiations and representation with respect to the employment relationship
including, but not limited to the Memorandum dated April 26, 1996, containing
proposed terms and conditions for hiring Employee.
9.3 Successors and Assigns. The rights and obligations of Employer
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Employer. Employee shall not be entitled to assign any
of Employee's rights or obligations under this Agreement.
9.4 Waiver. Either party's failure to enforce any provision of
this Agreement shall not in any way be construed as a waiver of any such
provision, or prevent that party thereafter from enforcing each and every other
provision of this Agreement.
9.5 Severable Provisions. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be judicially
unenforceable, in whole or in part, the remaining provisions shall nevertheless
be binding and enforceable.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be considered one and the same Agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.7 Choice of Law. This Agreement shall be governed and construed
in accordance with the laws of California.
9.8 Jurisdiction and Venue. In the event that any legal
proceedings are commenced in any court with respect to any matter arising under
this Agreement, Employer and Employee specifically consent and agree that:
(a) the courts of the State of California and/or the United
States Federal Courts located in the State of California shall have exclusive
jurisdiction over each of the parties and such proceedings; and
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<PAGE> 10
(b) the venue of any such action shall be in San Diego
County, California and/or the United States District Court for the Southern
District of California.
10. Employee's Representations. Employee represents and warrants that
Employee (i) is free to enter into this Agreement and to perform each of the
terms and covenants contained herein, (ii) is not restricted or prohibited,
contractually or otherwise, from entering into and performing this Agreement,
and (iii) will not be in violation or breach of any other agreement by reason of
Employee's execution and performance of this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates
first set forth above.
EMPLOYER:
COMBICHEM, INC., a California corporation
By: /s/ Peter Myers
-------------------------------------
Its: President and CEO
------------------------------------
EMPLOYEE:
LEE R. MCCRACKEN
/s/ Lee R. McCracken
-----------------------------------------
(Signature)
Address:
410 Flint Avenue
-----------------------------------------
Long Beach, CA 90814
-----------------------------------------
[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]
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<PAGE> 12
EXHIBIT A
LIST OF PRIOR INVENTIONS (SECTION 6.2.3)
None, other than the following: N/A
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<PAGE> 13
EXHIBIT B
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California
Labor Code that the foregoing Agreement between you and Employer does not
require you to assign or offer to assign to Employer inventions that you
developed entirely on your own time without using Employer's equipment,
supplies, facilities or trade secret information except for those inventions
that either:
(1) Relate at the time of conception or reduction to practice of the
invention to Employer's business, or Employer's actual or demonstrably
anticipated research or development.
(2) Result from any work performed by you for Employer.
To the extent a provision in the foregoing Agreement purports to require
you to assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered
by a contract between Employer and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By: /s/ Lee R. MCCracken
------------------------------------
-----------------------------------------
Dated: 5/13/96
----------------------------------
Witnessed by:
/s/ Bobbie J. Bosley
- ----------------------------------
Bobbie J. Bosley
- ----------------------------------
(Printed Name of Representative)
Dated: 5/13/96
---------------------------
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<PAGE> 14
EXHIBIT C
STOCK OPTION AGREEMENT
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<PAGE> 15
COMBICHEM, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board of Directors of the Corporation has adopted the CombiChem,
Inc. 1995 Stock Option/Stock Issuance Plan (the "Plan") for the purpose of
attracting and retaining the services of persons who contribute to the growth
and financial success of the Corporation.
B. Optionee is a person who the Plan Administrator believes has and
will contribute to the growth and financial success of the Corporation and this
Agreement is executed pursuant to and is intended to carry out the purposes of
the Plan.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of the
grant date (the "Grant Date") specified in the accompanying Notice of Grant of
Stock Option (the "Grant Notice"), a stock option to purchase up to that number
of shares of the Corporation's Common Stock (the "Option Shares") as is
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term at the option price per share (the "Option
Price") specified in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten (10) years
measured from the Grant Date and shall expire at the close of business on the
expiration date (the "Expiration Date") specified in the Grant Notice, unless
sooner terminated in accordance with Paragraph 5, 6 or 17.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee.
4. DATES OF EXERCISE. This option may not be exercised in whole or in
part at any time prior to the time the Plan is approved by the Corporation's
shareholders in accordance with Paragraph 17. Provided such shareholder approval
is obtained, this option shall thereupon become exercisable for the Option
Shares in one or more installments as is specified in the Grant Notice. As the
option becomes exercisable in one or more installments,
<PAGE> 16
the installments shall accumulate and the option shall remain exercisable for
such installments until the Expiration Date or the sooner termination of the
option term under Paragraph 5 or Paragraph 6 of this Agreement.
5. ACCELERATED TERMINATION OF OPTION TERM. Unless extended by the Plan
Administrator in its sole discretion, the option term specified in Paragraph 2
shall terminate (and this option shall cease to be exercisable) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Except as otherwise provided in subparagraph (ii) or (iii)
below, should Optionee cease to remain in Service while this option is
outstanding, then the period for exercising this option shall be reduced
to a three (3)-month period commencing with the date of such cessation of
Service, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such three (3)-month
period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(ii) Should Optionee die while this option is outstanding, 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 law of descent and distribution shall have the right
to exercise this option. Such right shall lapse and this option shall
cease to be exercisable upon the earlier of (A) the expiration of the
twelve (12) month period measured from the date of Optionee's death or (B)
the Expiration Date. Upon the expiration of such twelve (12) month period
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to remain in Service while this option is outstanding, then
the Optionee shall have a period of twelve (12) months (commencing with
the date of such cessation of Service) during which to exercise this
option, but in no event shall this option be exercisable at any time after
the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is unable to engage in any substantial gainful activity for
the Corporation or the parent or subsidiary corporation retaining his/her
services by reason of any medically determinable physical or mental
impairment, which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve
(12) months. Upon the expiration of such limited period of exercisability
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.
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<PAGE> 17
(iv) During the limited period of exercisability applicable under
subparagraph (i), (ii) or (iii) above, this option may be exercised for
any or all of the Option Shares for which this option is, at the time of
the Optionee's cessation of Service, exercisable in accordance with the
exercise schedule specified in the Grant Notice and the provisions of
Paragraph 6 of this Agreement.
(v) For purposes of this Paragraph 5 and for all other purposes
under this Agreement:
A. The Optionee shall be deemed to remain in SERVICE for so long
as the Optionee continues to render periodic services to the Corporation
or any parent or subsidiary corporation, whether as an Employee, a
non-employee member of the board of directors, or an independent
contractor or consultant.
B. The Optionee shall be deemed to be an EMPLOYEE of the
Corporation and to continue in the Corporation's employ for so long as the
Optionee remains in the employ of the Corporation or one or more of its
parent or subsidiary corporations, 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.
C. A corporation shall be considered to be a SUBSIDIARY
corporation of the Corporation if it is a member of an unbroken chain of
corporations beginning with the Corporation, provided each such
corporation in the chain (other than the last corporation) owns, at the
time of determination, stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain.
D. A corporation shall be considered to be a PARENT corporation
of the Corporation if it is a member of an unbroken chain ending with the
Corporation, provided each such corporation in the chain (other than the
Corporation) owns, at the time of determination, stock possessing 50% or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
6. SPECIAL TERMINATION OF OPTION.
A. This Option, to the extent not previously exercised, shall terminate
and cease to be exercisable upon the consummation of one or more of the
following shareholder- approved transactions (a "Corporate Transaction") unless
this Option is expressly assumed by the successor corporation or parent thereof:
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<PAGE> 18
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation.
B. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES.
A. In the event any change is made to the Corporation's outstanding
Common Stock by reason of any stock split, stock dividend, combination of
shares, exchange of shares, or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the total number of Option Shares subject to this option,
(ii) the number of Option Shares for which this option is to be exercisable from
and after each installment date specified in the Grant Notice and (iii) the
Option Price payable per share in order to reflect such change and thereby
preclude a dilution or enlargement of benefits hereunder.
B. If this option is to be assumed in connection with a Corporate
Transaction described in Paragraph 6 or is otherwise to remain outstanding, then
this option shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain 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, and appropriate adjustments shall also be made to the Option Price
payable per share, provided the aggregate Option Price payable hereunder shall
remain the same.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a shareholder with respect to the Option Shares until
such individual shall have exercised the option and paid the Option Price.
9. MANNER OF EXERCISING OPTION.
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<PAGE> 19
A. In order to exercise this option with respect to all or any part of
the Option Shares for which this option is at the time exercisable, Optionee (or
in the case of exercise after Optionee's death, the Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
(i) Execute and deliver to the Secretary of the Corporation a
stock purchase agreement (the "Purchase Agreement") in substantially the
form of Exhibit B to the Grant Notice.
(ii) Pay the aggregate Option Price for the purchased shares in one
or more forms approved under the Plan.
(iii) Furnish to the Corporation appropriate documentation that the
person or persons exercising the option, if other than Optionee, have the
right to exercise this option.
B. Should the Corporation's outstanding Common Stock be registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") at the time the option is exercised, then the Option Price may also
be paid as follows:
(i) in shares of Common Stock held by the Optionee 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) through a special sale and remittance procedure pursuant to
which the Optionee is to provide irrevocable written instructions (a) to a
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 Option Price
payable for the purchased shares plus all applicable Federal and State
income and employment taxes required to be withheld by the Corporation by
reason of such purchase and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in
order to effect the sale transaction.
C. For purposes of this Agreement, the Exercise Date shall be the date
on which the executed Purchase Agreement shall have been delivered to the
Corporation, and the fair market value of a share of Common Stock on any
relevant date shall be determined in accordance with subparagraphs (i) through
(iii) below:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the NASDAQ National
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<PAGE> 20
Market System, the fair market value shall be the closing selling price of
one share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers through its
NASDAQ system or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the closing
selling price on the last preceding date for which such quotation exists
shall be determinative of fair market value.
(ii) If the Common Stock is at the time listed or admitted to
trading 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 reported
sale of Common Stock on such exchange on the date in question, then the
fair market value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
(iii) If the Common Stock at the time is neither listed nor admitted
to trading on any stock exchange nor traded in the over-the-counter
market, or if the Plan Administrator determines that the value determined
pursuant to subparagraphs (i) and (ii) above does not accurately reflect
the fair market value of the Common Stock, then such fair market value
shall be determined by the Plan Administrator after taking into account
such factors as the Plan Administrator shall deem appropriate.
D. As soon after the Exercise Date as practical, the Corporation shall
mail or deliver to Optionee or to the other person or persons exercising this
option a certificate or certificates representing the shares so purchased and
paid for, with the appropriate legends affixed thereto.
E. In no event may this option be exercised for any fractional shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
A. The exercise of this option and the issuance of Option Shares upon
such exercise shall be subject to compliance by the Corporation and the Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Corporation's Common
Stock may be listed at the time of such exercise and issuance.
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<PAGE> 21
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
12. LIABILITY OF CORPORATION.
A. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares, unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Article IV, Section 3, of the
Plan.
B. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee's
signature line on the Grant Notice. All notices shall be deemed to have been
given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
14. LOANS. The Plan Administrator may, in its absolute discretion and
without any obligation to do so, assist the Optionee in the exercise of this
option by (i) authorizing the extension of a loan to the Optionee from the
Corporation or (ii) permitting the Optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
such loan or installment method of payment (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
-7-
<PAGE> 22
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this option.
16. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Corporation's shareholders within twelve (12) months
after the adoption of the Plan by the Board of Directors. Notwithstanding any
provision of this Agreement to the contrary, this option may not be exercised in
whole or in part until such shareholder approval is obtained. In the event that
such shareholder approval is not obtained, then this option shall thereupon
terminate in its entirety and the Optionee shall have no further rights to
acquire any Option Shares hereunder.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In the
event this option is designated an incentive stock option in the Grant Notice,
the following terms and conditions shall also apply to the grant:
A. This option shall cease to qualify for favorable tax treatment as an
incentive stock option under the Federal tax laws if (and to the extent) this
option is exercised for one or more Option Shares: (i) more than three (3)
months after the date the Optionee ceases to be an Employee for any reason other
than death or permanent disability (as defined in Paragraph 5) or (ii) more than
one (1) year after the date the Optionee ceases to be an Employee by reason of
permanent disability.
B. Should this option be designated as immediately exercisable in the
Grant Notice, then this option shall not become exercisable in the calendar year
in which granted if (and to the extent) the aggregate fair market value
(determined at the Grant Date) of the Corporation's Common Stock for which this
option would otherwise first become exercisable in such calendar year would,
when added to the aggregate fair market value (determined as of the respective
date or dates of grant) of the Corporation's Common Stock for which this option
or one or more other incentive stock options granted to the Optionee prior to
the Grant Date (whether under the Plan or any other option plan of the
Corporation or its parent or subsidiary corporations) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. To the extent the exercisability of this option is deferred by
reason of the foregoing limitation, the deferred portion will first become
exercisable in the first calendar year or years thereafter in which the One
Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18.B would not
be contravened.
-8-
<PAGE> 23
C. Should this option be designated as exercisable in installments in
the Grant Notice, then no installment under this option (whether annual or
monthly) shall qualify for favorable tax treatment as an incentive stock option
under the Federal tax laws if (and to the extent) the aggregate fair market
value (determined at the Grant Date) of the Corporation's Common Stock for which
such installment first becomes exercisable hereunder will, when added to the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Corporation's Common Stock for which one or more other incentive
stock options granted to the Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any parent or subsidiary
corporation) first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate.
19. WITHHOLDING. Optionee hereby agrees to make appropriate arrangements
with the Corporation or parent or subsidiary corporation employing Optionee for
the satisfaction of all Federal, State or local income tax withholding
requirements and Federal social security employee tax requirements applicable to
the exercise of this option.
-9-
<PAGE> 1
EXHIBIT 10.35
March 14, 1997
Ms. Karin Eastham
4965 Gunston Court
San Diego,CA 92130
Dear Karin:
We are pleased to offer you the position of Vice President, Finance and
Administration and Chief Financial Officer with CombiChem, Inc. at a starting
salary of $15,500.00 per month. The preferred starting date of the position is
to be April 14th, 1997. If you accept this offer, you would begin work as an
exempt employee.
So long as you are otherwise eligible, you will be provided coverage under the
terms and conditions of CombiChem's various standard benefits programs including
health care for yourself and your dependents and four weeks personal leave each
year. In addition, CombiChem will provide you with the following compensation
items: At the end of each fiscal year, the CEO and Board of Directors shall
determine, in its reasonable discretion, the size and amount of Employee's
performance bonus, if any, up to a maximum of twenty percent (20%) of Employee's
base salary during the prior fiscal year. The Annual Performance Bonus shall be
paid to Employee within sixty (60) days following Employer's fiscal year end.
The first year bonus is not guaranteed and will be pro-rated to your start date.
You will be granted an option to purchase 350,000 shares of common stock at the
current per share price of $0.10 with standard vesting provisions over four
years. Per our discussion, we will be flexible on structuring your start date so
that you can take advantage of the current price of the options. As an employee
of CombiChem you will be eligible to participate in CombiChem's standard
employee benefit package as set forth in the Employee's Handbook which may be
amended from time to time.
Although Employer and Employee anticipate a long and mutually rewarding
employment relationship, either party may terminate this Agreement, without
cause, upon fourteen (14) days prior written notice delivered to the other
party. It is expressly understood and agreed that the employment is not for any
specified term, and without any agreement for employment, for so long as
Employee performs satisfactorily. In the event that Employer terminates Employee
pursuant to the above condition, Employee shall be entitled to receive an
aggregate severance benefit of six months of Employee's then current base salary
and benefits which shall be paid by Employer in six (6) equal monthly
installments until fully paid or until Employee has secured
<PAGE> 2
full-time employment. This agreement expires two years after the date of hire
and does not apply if the Employer/Employee relationship is terminated "for
cause." Employer may immediately terminate this employment relationship "for
cause" upon written notice to the Employee. Your employment is contingent on
your providing CombiChem with the legally required proof of your identity and
authorization to work in the United States. As a condition of your employment,
you will be required to sign CombiChem's standard Employee Confidentiality and
Invention Assignment Agreement.
We understand that you will have satisfied your obligations to your former
employer before you become an employee of CombiChem, Inc. The above terms and
conditions have been established to reflect the importance of your position with
CombiChem.
Karin, if you agree with and accept the terms of this offer of employment,
please sign below and return this letter to our office. A confidentiality
agreement is enclosed for your perusal. Please take time to read the enclosed
agreement, sign it and return it to my attention or bring it with you on your
first day of work if you decide to accept our offer of employment. If you have
questions, please do not hesitate to call on me. We are confident that your
employment with CombiChem will prove mutually beneficial, and we look forward to
having you join us.
Sincerely,
/s/ Vicente Anido, Jr.
Vicente Anido, Jr.
President & CEO
Accepted by:
/s/ Karin Eastham 3-17-97
- ------------------------------------ --------------------------------------
Karin Eastham Date
<PAGE> 1
EXHIBIT 10.36
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes
only, December 22, 1995, is made by and between Campson Corporation, a
California corporation ("LESSOR") and CombiChem, Inc., a California corporation
("LESSEE"), (collectively the "PARTIES," or individually A "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 9050 Camino Santa Fe, San Diego located in the
County of San Diego, State of California and generally described as (describe
briefly the nature of the property) an approximately 34,244 sq. ft. industrial
building together with adjoining parking areas, outside storage facility and all
landscaped areas (at no extra cost), including office space on two (2) floors,
and as legally described on attached Exhibit "A" ("PREMISES").
(See Paragraph 2 for further provisions)
1.3 TERM: ten (10) years and 0 months ("ORIGINAL TERM") commencing
June 1, 1996 ("COMMENCEMENT DATE") and ending May 31, 2006 ("EXPIRATION DATE").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: See Addendum "A" ("EARLY POSSESSION DATE").
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $See Addendum "A" per month ("BASE RENT"), payable on
the first day of each month commencing July 1, 1996. (See Paragraph 4 for
further provisions.)
If this box is checked, there are provisions in this Lease for the
Base Rent to be adjusted.
1.6 BASE RENT DEPOSIT: $32,532 paid upon Lessor's receipt of Funding
Commitment (per Addendum "A") as Base Rent for the period of June 1-30, 1996.
1.7 SECURITY DEPOSIT: $See Addendum "A" ("SECURITY DEPOSIT"). (See
Paragraph 5 for further provisions.)
1.8 PERMITTED USE: General office use, all R&D/Chemistry research
associated with Lessee's business and all other lawful uses permitted under
applicable zoning laws. (See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "Insuring Party" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes): See
Addendum "A" represents
[ ] Lessor exclusively ("LESSOR'S BROKER"); both Lessor and Lessee, and
____________________________________________________ represents
[ ] Lessee exclusively ("LESSEE'S BROKER"); both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by _________________________ ("GUARANTOR"). (See Paragraph 37
for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting
of Paragraphs 1 through 18 and Exhibits "A" -- "D" all of which constitute a
part of the Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee in a good
and sanitary condition clean and free of debris and Hazardous Substance
Conditions on the Commencement Date and warrants to Lessee that the existing
plumbing (including, without limitation, sewer and drain lines), fire sprinkler
system, lighting, air conditioning, heating, and loading doors, if any, in the
Premises, other than those constructed by Lessee, shall be in good operating
condition on the Commencement Date. If a non-compliance with said warranty
exists as of the Commencement Date. Lessor shall, except as otherwise provided
in this Lease, promptly after receipt of written notice from Lessee setting
forth with specificity the nature and extent of such non-compliance, rectify
same at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty by December 31, 199_ correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants to Lessee that the Improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances and any other applicable laws in effect on the
Commencement Date. Said warranty does not apply to the use to which Lessee will
put the Premises or to any Alterations or Utility Installations (as defined in
Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply
with said warranty, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify the same at
Lessor's expense. If Lessee does not give Lessor written notice of
non-compliance with this warranty by December 31, 19__ correction or that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters, and (c) that neither Lessor, nor
any of Lessor's agents, has made any oral or written representations or
warranties with respect to the said matters other than as set forth in this
Lease.
2.5 DELETED
PAGE 1
<PAGE> 2
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession as set forth in Addendum "A".
All other terms of this Lease, however, (including but not limited to the
obligations to pay Real Property Taxes and insurance premiums and to maintain
the Premises) shall be in effect during such period. Any such early possession
shall not affect nor advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If possession of the Premises is not
delivered to Lessee, Lessee may, at its option *1 by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
4. RENT.
4.1 BASED RENT. Subject to the terms and conditions of Addendum "A"
Lessee shall cause payment of Base Rent and other rent or charges, as the same
may be adjusted from time to time, to be received by Lessor in lawful money of
the United States, without offset or deduction, on or before the day on which it
is due under the terms of this Lease. Base Rent and all other rent and charges
for any period during the term hereof which is for less than one (1) full
calendar month shall be prorated based upon the actual number of days of the
calendar month involved. Payment of Base Rent and other charges shall be made to
Lessor at is address stated herein or to such other persons or at such other
addresses as Lessor may from time to time designate in writing to Lessee. *2
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Lessor shall, at the expiration or earlier termination
of the term hereof and after Lessee has vacated the Premises, return to Lessee
(or, at Lessor's option, to the last assignee, if any, of Lessee's interest
herein), that portion of the Security Deposit not used or applied by Lessor. *3
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
purposes set forth in Paragraph 1.8, or any other use which is comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of the
Premiss in a manner that creates waste or a nuisance, or that disturbs owners
and/or occupants of, or causes damage to, neighboring premises or properties.
Lessor hereby agrees to not unreasonably withhold or delay its consent to any
written request by Lessee. Lessees assignees or subtenants, and by prospective
assignees and subtenants of the Lessee, its assignees and subtenants, for a
modification of said permitted purpose for which the premises may be used or
occupied, so long as the same will not impair the structural integrity of the
improvements on the Premises, the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises and the Improvements thereon,
and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to
withhold such consent, Lessor shall within five (5) business days give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use. *4
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances and shall comply in a timely manner (at Lessee's sole cost and
expense) with all Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE"
shall mean (i) the installation or use of any above or below ground storage
tank, (ii) the generation, possession, storage, use, transportation, or disposal
of a Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of Lessee's
business permitted on the Premises, so long as such use does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Premises,
other than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give Lessor
a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action or proceeding given to, or received from,
any
PAGE 2
<PAGE> 3
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises in
violation of applicable laws.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement. *5
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in
this Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "APPLICABLE LAW," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, relating in any
manner to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law reasonably specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving failure by
Lessee or the Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) on at
least 24 hours prior notice (as defined in Paragraph 8.3(a)) shall have the
right to enter the Premises at any time, in the case of an emergency, and
otherwise at reasonable times, for the purpose of inspecting the condition of
the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Laws (as defined in Paragraph 6.3), and to employ experts and/or
consultants in connection therewith and/or to advise Lessor with respect to
Lessee's activities, including but not limited to the installation, operation,
use, monitoring, maintenance, or removal of any Hazardous Substance or storage
tank on or from the Premises. The costs and expenses of any such inspections
shall be paid by the party requesting same, and a certified copy of such report
shall be provided to Lessee.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraph 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc.), 7.2 (Lessor's obligations to repair), 9 (damage and
destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and
expense and at all times *6
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements
of Lessor contained in Paragraphs 2.2 (relating to condition of the Premises),
2.3 (relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), *7
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and
equipment that can be removed without doing material damage to the Premises. The
term "ALTERATIONS" shall mean any modification of the improvements on the
Premises from that which are provided by Lessor under the terms of this Lease,
other than Utility Installations or Trade Fixtures, whether by addition or
deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by lessee that are not yet owned
by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations in, on, under or about the Premises without Lessor's
prior written consent, which shall not be unreasonably withheld. Lessee may,
however, may non-structural Utility Installations to the interior of the
Premises (excluding the roof), as long as they are not visible from the outside,
do not involve puncturing, relocating or removing the roof or any existing
walls, and the cumulative cost thereof during the term of this Lease as extended
does not exceed $70,000.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor.
(c) INDEMNIFICATION. lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or ny interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before
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the enforcement thereof against the Lessor or the Premises. If Lessor shall
require, lessee shall furnish to Lessor a surety bond satisfactory to lessor in
an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as required
by law for the holding of the Premises free from the effect of such lien or
claim. In addition, Lessor may require Lessee to pay Lessors' reasonable
attorney's fees and costs in participating in such action if Lessor shall decide
it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal or become the owner thereof as hereinafter provided in this Paragraph
7.4, all Alterations and Utility Additions made to the Premises by Lessee shall
be the property of and owned by Lessee, but considered a part of the Premises.
Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of the Lease, become the property of Lessor and remain upon and be
surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may *8
require that any or all Lessee Owned alternations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
their installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
with all of the improvements, parts and surfaces thereof clean and free of
debris and in good operating order, condition and state of repair, ordinary wear
and tear excepted and subject to Paragraph 9. "ORDINARY WEAR AND TEAR" shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified in writing by Lessor, the
Premises, as surrendered, shall include the Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Alterations and/or Utility Installations, as well as the removal
of any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Law and/or good service practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease. *9
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or
Lessee is the Insuring Party, Lessee shall pay for all insurance required under
this Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums for
policy periods commencing prior to or extending beyond the Lease term shall be
prorated to correspond to the Lease term. Payment shall be made by Lessee to
Lessor within ten (10) days following receipt of an invoice from the company
providing such insurance for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of his Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relive Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event lessor is the Insuring
Party, Lessor shall also maintain liability insurance described in Paragraph
8.2(a), above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.*10
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS(S)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reasons of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as defined in Paragraph 9.1(c).
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(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the
full rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event the
Lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) DELETED.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property. Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $10,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancellable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the
Insuring party shall fail to procure and maintain the insurance required to be
carried by the Insuring Party under this Paragraph 8, the other Party may but
shall not be required to, procure and maintain the same, but at Lessee's
expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waiver their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.*11
8.7 INDEMNITY. Except for Lessor's negligence willful misconduct
and/or breach of this Lease, Lessee shall indemnify, protect, defend and hold
harmless the Premises, Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, permits, attorney's and
consultant's fees, expenses and/or liabilities arising out of, involving, or in
dealing with, the occupancy of the Premises by Lessee, the conduct of Lessee's
business, any act, omission or neglect of Lessee, its agents, contractors,
employees or invitees, and out of any Default or Breach by Lessee in the
performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters. Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except for Lessor's
negligence, willful misconduct and/or breach of this Lease, Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Lessee. Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Lessor shall not be liable for any damages arising from any act or neglect
of any other tenant of Lessor.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations the repair cost of which damage or destruction is 50% or more of
the then Replacement Cost of the
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Premises immediately prior to such damage or destruction, excluding from such
calculation the value of the land and Lessee Owned Alterations and Utility
Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. if Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonable possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either : (i) repair
such damage of knowledge of such damage at Lessor's expense, in which event this
Lease shall continue in full force and effect, or (ii) give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date of the occurrence of such damage.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs (including any destruction required by
any authorized public authority), this Lease shall terminate as of the date of
such Premises Total Destruction, whether or not the damage or destruction is an
Insured Loss or was caused by a negligent or willful act of Lessee. In the
event, however, that the damage or destruction was caused by Lessee, Lessor
shall have the right to recover Lessor's damages, from Lessee except as released
and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease (as extended by Lessee pursuant to any of
Lessee's renewal options), there is damage for which the cost to repair exceeds
four (4) months' Base Rent, whether or not an Insured Loss, either party may
terminate this Lease effective sixty (60) days following the date of occurrence
of such damage by giving written notice to the other party of its election to do
so within thirty (30) days after the date of occurrence of such damage.
Provided, however, if Lessee at that time has an exercisable option to extend
this Lease or to purchase the Premises, then Lessee may preserve this Lease by,
within twenty (20) days following the occurrence of the damage, or before the
expiration of the time provided in such option for its exercise, whichever is
earlier ("EXERCISE PERIOD"), (i) exercising such option and (ii) providing
Lessor with any shortage in insurance proceeds (or adequate assurance thereof)
needed to make the repairs. If Lessee duly exercises such option during said
Exercise Period and provides Lessor with funds (or adequate assurance thereof)
to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense
repair such damage as soon as reasonably possible and this Lease shall continue
in full force and effect. If Lessee fails to exercise such option and provide
such funds or assurance during said Exercise Period, then Lessor may at Lessor's
option terminate this Lease as of the expiration of said sixty (60) day period
following the occurrence of such damage by giving written notice to Lessee of
Lessor's election do so within ten (10) days after the expiration of the
Exercise Period, notwithstanding any term or provision in the grant of option to
the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges,
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if any, payable by Lessee hereunder for the period during which such damage, its
repair or the restoration continues, shall be abated in proportion to the degree
to which Lessee's use of the Premises is impaired. Except for abatement of base
Rent, Real Property Taxes, insurance premiums, and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such repair or restoration.*12
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "COMMENCE" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.*13
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefore (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Law and this Lease shall continue in full force and effect; but
subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option
either (i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to investigate and remediate such condition exceeds twenty (20) times the
then monthly Base Rent, give written notice to Lessee within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
one hundred eighty (180) days following the giving of such notice.*14 In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the investigation and remediation of such Hazardous Substance Condition totally
at Lessee's expense and without reimbursement from Lessor except to the extent
of an amount equal to twenty (20) times the then monthly Base Rent. Lessee shall
provide Lessor with the funds required of Lessee or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in Lessor's
notice of termination. If a Hazardous Substance Condition occurs for which
Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph 9.6(a)
for a period of not to exceed twelve (12) months.
9.8 TERMINATION--ADVANCED PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of his Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes,
as defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Estate Property Taxes
applicable to the Premises, and to require such current year's Real Property
Taxes to be paid in advance to Lessor by Lessee, in a lump sum amount equal to
the installment due, at least twenty (20) days prior to the applicable
delinquency date.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form or real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.*15
10.3 DELETED.
10.4 PERSONAL PROPERTY TAXES. Subject to Lessee's legal right to
contest the amount or applicability of such taxes, Lessee shall pay prior to
delinquency all taxes assessed against and levied upon Lessee Owned Alterations.
Utility Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause its Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee
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within ten (10) days after receipt of a written statement setting forth the
taxes applicable to Lessee's property or, at Lessor's option, as provided in
Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36; and subject to Addendum "A".
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "NET WORTH OF
LESSEE" for purposes of this Lease shall be the net worth of Lessee established
under generally accepted accounting principles consistently applied.
(d) Subject to paragraph 9 of Addendum "A", an assignment or
subletting of Lessee's interest in this Lease without Lessor's specific prior
written consent shall, at Lessor's option, be a Default curable after notice per
Paragraph 13.1(c) or a noncurable Breach without the necessity of any notice and
grace period. If Lessor elects to treat such unconsented to assignment or
subletting as a noncurable Breach, Lessor shall have the right to either: (i)
terminate this Lease, or (ii) upon thirty (30) days written notice ("Lessor's
Notice"), increase the monthly Base Rent to fair market rental value or one
hundred ten percent (110%) of the Base Rent then in effect, whichever is
greater. Pending determination of the new fair market rental value, if disputed
by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any
overpayment credited against the next installment(s) of Base Rent coming due,
and any underpayment for the period retroactively to the effective date of the
adjustment being due and payable immediately upon the determination thereof.
Further, in the event of such Breach and market value adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value (without the Lease
being considered an encumbrance or any deduction for depreciation or
obsolescence, and considering the Premises at its highest and best use and in
good condition), or one hundred ten percent (110%) of the price previously in
effect, whichever is greater, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of such
adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (iii)
release Lessee of any obligations hereunder, or (iii) after the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's
obligations under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or any one else responsible for the performance of the Lessee's
obligations under this Lease, including the sublease, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with reimbursement of Lessor's legal fees and costs, which shall not
exceed $1,000. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such
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obligations as are contrary to or inconsistent with provisions of an assignment
or sublease to which Lessor has specifically consented in writing.
(g) Deleted.
(h) Deleted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublease, be deemed liable to the sublessee for
any failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon an uncured Breach in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublease shall pay such rents
and other charges to Lessor notwithstanding any notice from or claim from Lessee
to the contrary. Lessee shall have no right or claim against said sublessee, or,
until the Breach has been cured, against Lessor, for any such rents and other
charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Deleted.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's and Lessee's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $500.00 is a reasonable maximum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "DEFAULT" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without a lessor-authorized
assignee or sublessee, or without the intention to reoccupy same, or the
abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor to a third party, as
and when due, the failure by Lessee to provide Lessor with reasonable evidence
of insurance or surety bond required under this Lease, or the failure of Lessee
to fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of seven (7) days, following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable of (i) compliance with Applicable Law per
Paragraph 6.3, (iii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of twenty-one (21)
days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The
making by lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. ss. 101 or
any successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within one hundred twenty (120) days; (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days;
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provided, however, in the event that any provision of this subparagraph (e) is
contrary to any applicable law, such provision shall be of no force or effect,
and not affect the validity of the remaining provisions.
(f) The discovery of Lessor that any financial statement given
to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false, without a reasonable explanation from Lessee for such error.
(g) Deleted.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require future payments for a period of one (1) calendar year to be made
under this Lease by Lessee to be made only by cashier's check *16 in the event
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or
without further notice or demand, and without limiting Lessor in the exercise of
any right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event, Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises *17 reasonable attorneys' fees, and
that portion of the leasing commission paid by Lessor applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the prior sentence shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph. If termination of
this Lease is obtained through the provisional remedy of unlawful detainer,
Lessor shall have the right to recover in such proceeding the unpaid rent and
damages as are recoverable therein, or Lessor may reserve therein the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grace period required under subparagraphs 13.1(b), (c) or (d)
was not previously given, a notice to pay rent or quit, or to perform or quit,
as the case may be, given to Lessee under any statute authorizing the forfeiture
of leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statue.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations. See
paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereunder available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease at to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by
Lessor for free or abated rent or other charges applicable to the Premises, or
for the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of an uncured Breach of this Lease by Lessee, as defined in Paragraph 13.1, any
such inducement Provisions shall automatically be deemed deleted from this Lease
and of no further force or effect, and any rent, other charge, bonus, inducement
or consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable to Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease if such Breach
remains uncured after the applicable period available for its cure.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to five percent (5%) of
such overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less
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than thirty (30) days after receipt by Lessor, and by the holders of any ground
lease, mortgage or deed of trust covering the Premises whose name and address
shall have been furnished Lessee in writing for such purposes, of written notice
specifying wherein such obligation of Lessor has not been performed; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days after such notice are reasonably required for its performance, then
Lessor shall not be in breach of this Lease if performance is commenced within
such thirty (30) day period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If materially affected, or if more than ten
percent (10%) of the floor area of the Premises, or more than twenty-five
percent (25%) of the land area are not occupied by any building, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
thirty (30) days after Lessor shall have given Lessee written notice of such
taking (or in the absence of such notice, within thirty (30) days after the
condemning authority shall have taken possession) terminate this Lease as of the
date the condemning authority takes such possession.*18 If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in the same proportion as the rentable floor
area of the Premises taken bears to the total rentable floor area of the
building located on the Premises. No reduction of Base Rent shall occur if the
only portion of the Premises taken is land on which there is no building. Any
award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under the threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received over and above the legal and other expenses
incurred by Lessor in the condemnation matter, repair any damage to the Premises
caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. BROKER'S FEE.
15.1 The Broker's named in Paragraph 1.10 are the procuring causes
of this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay
to said Brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate written agreement between
Lessor and said Brokers for brokerage services rendered by said Brokers to
Lessor in this transaction.
15.3 Deleted.
15.4 Deleted.
15.5 Lessee and Lessor each represent and warrant to the other that
it has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessor hereby agrees to indemnify, protect, defend and hold Lessee harmless from
and against liability for compensation or charges which may be claimed by any
such unnamed broker, finder or other similar party by reason of any dealings or
actions of Lessor, including any costs, expenses, attorneys' fees reasonably
incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises,
any part thereof, or the building of which the Premises are a party, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. *20 All such financial statements shall be received by Lessor and
such lender or purchaser in confidence and shall be used only for the purposes
herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined. *21
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
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19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease *22 are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by had or by messenger or courier
service) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notice purposes. Either
Party may be written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to be
given to either party hereunder shall be concurrently transmitted to such party
or parties at such addresses as such party may from time to time hereafter
designate by written notice.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given seventy-two (72) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real
PAGE 12
<PAGE> 13
property of which the Premises are a part, to any and all advances made on the
security thereof, and to all renewals, modifications, consolidations,
replacements and extensions thereof. Lessee agrees that the Lenders holding any
such Security Device shall have no duty, liability or obligation to perform any
of the obligations of Lessor under this Lease, but that in the event of Lessor's
default with respect to any such obligation, Lessee will give any Lender whose
name and address have been furnished Lessee in writing for such purpose notice
of Lessor's default and allow such Lender thirty (30) days following receipt of
such notice for the cure of said default before invoking any remedies Lessee may
have by reason thereof. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance *23 (a "non-disturbance
agreement") from the Lender that Lessee's possession and this Lease, including
any options to extend the term hereof, will not be disturbed so long as Lessee
is not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fees award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of any emergency,
and otherwise at reasonable times upon twenty-four (24) hours prior notice for
the purpose of showing the same to prospective purchasers, lenders, or lessees
(during the last eight (8) months of the Lease term) and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or building any ordinary
"For Sale" signs and Lessor may at any time during the last one hundred twenty
(120) days of the term hereof place on or about the Premises any ordinary "For
Lease" signs. All such activities of Lessor shall be without abatement of rent
or liability to Lessee. *24
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installation, Trade
Fixtures and Alterations). *25
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an
PAGE 13
<PAGE> 14
assignment, a subletting or the presence or use of a Hazardous Substance,
practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. Subject to Paragraph 12.2(e)
(applicable to assignment or subletting), Lessor may, as a condition to
considering any such request by Lessee, require that Lessee deposit with Lessor
an amount of money (in addition to the Security Deposit held under Paragraph 5)
reasonably calculated by Lessor to represent the cost Lessor will incur in
considering and responding to Lessee's request. Except as otherwise provided,
any unused portion to said deposit shall be refunded to Lessee without interest.
Lessor's consent to any act, assignment of this Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no Default or
Beach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. DELETED.
38. QUITE POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has
the following meaning: (a) the right to extend the term of this Lease or to
renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal to lease the Premises or the
right of first offer to lease the Premises or the right of first refusal to
lease other property of Lessor or the right of first offer to lease other
property of Lessor; (c) the right to purchase the Premises, or the right of
first refusal to purchase the Premises, or the right of first offer to purchase
the Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first offer
to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee is in
full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise; provided, however, that the Options may
be assigned to and exercised by any assignee of the Lease as to which Lessor's
consent is not required.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options to extend or review this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason by Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
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<PAGE> 15
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease, together with reasonable fees incurred in the recovery of such costs.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL FURTHER, EXPERTS SHOULD
BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE
POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS
SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE
OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
<TABLE>
<S> <C>
Executed at San Diego, CA Executed at San Diego, CA
------------------------------- -------------------------------
on December 27, 1995 on 12/27/95
---------------------------------------- ----------------------------------------
by LESSOR: by LESSEE:
Campson corporation, a California CombiChem, Inc., a California corporation
- ------------------------------------------ ------------------------------------------
By /s/ Lee M. Chesnut By /s/ Gail Erwin
---------------------------------------- ----------------------------------------
Name Printed: Lee M. Chestnut Name Printed: Gail Erwin
----------------------------- -----------------------------
Title: President Title: Controller
------------------------------------ ------------------------------------
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C>
By By
---------------------------------------- ----------------------------------------
Name Printed: Name Printed:
----------------------------- -----------------------------
Title: Title:
------------------------------------ ------------------------------------
Address: 9627 Grossmont Summit Drive Address: 9050 Camino Santa Fe
------------------------------------ ------------------------------------
La Mesa, CA 91941 San Diego, CA 92127
------------------------------------ ------------------------------------
Tel. No. (619)697-7777 Fax No. (619) 697-7846 Tel. No. (619)530-0484 Fax No. (619) 530-9998
-------------- --------------- -------------- ---------------
</TABLE>
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 345 South Figueroa
Street, Suite M-1, Los Angeles, CA 90071 (213) 687-8777. Fax No. (213) 687-8616.
PAGE 16
<PAGE> 17
ADDENDUM "A"
TO STANDARD INDUSTRIAL LEASE -- SINGLE-TENANT
BETWEEN
CAMPSON CORPORATION, A CALIFORNIA CORPORATION
AND
COMBICHEM, INC., A CALIFORNIA CORPORATION
This Addendum "A" to Lease ("Lease Addendum") is attached to and
made a part of that certain STANDARD INDUSTRIAL/COMMERCIAL SINGLE TENANT LEASE
- -- NET, dated December 22, 1995, made by and between CAMPSON CORPORATION, a
California corporation, as "Lessor," and COMBICHEM, INC., a California
corporation, as "Lessee" (the "Lease"), and constitutes additional covenants and
agreements thereto as set forth in the Lease, with the covenants agreements
contained herein to prevail in the event of any conflicts between the covenants
and agreements contained herein and those in the Lease.
I. THE FOLLOWING INSERTS ARE HEREBY INCORPORATED INTO THE LEASE WHERE INDICATED
BY STARRED NUMERALS IN THE LEASE:
A. Insert *1
Paragraph 3.3 - Delay in Possession. Add the following in line 7 of
Paragraph 3.3 after "hereunder":
and any base rent prepared by Lessee, any costs paid to
Lessor pursuant to Addendum "A" (including, without
limitation, the security deposit, Lessee's deposits into
the Tenant Improvement Account, the costs of these
services to space planning, engineering, and
architectural work incurred by Lessee in connection with
the improvements that Lessee intends to make to the
Premises) shall be refunded to Lessee and the Letter of
Credit shall be terminated.
B. Insert *2
Article 4. Rent. Add the following paragraphs to Article 4:
4.2 Additional Rent. All charges payable by Lessee under
the terms of this Lease in addition to Base Rent shall
constitute additional rent ("Additional Rent") to
Lessor. All remedies available to Lessor for nonpayment
of rent shall be available for nonpayment of any
Additional Rent. The term "rent" means Base Rent and
Additional Rent. Unless this Lease provides otherwise,
all Additional Rent shall be paid by Lessee within
fifteen (15) days after Lessee's receipt of a statement
from Lessor. This Lease is a "triple net" lease, and it
is intended that the Base Rent payable hereunder shall
be an absolutely net return to Lessor and that Lessee
shall pay all costs and expenses relating
<PAGE> 18
to the Premises, unless otherwise expressly provided in
this Lease. Additional Rent includes without limitation:
(a) Operating Expenses [see Paragraph 4.3]; (b)
Maintenance and Repairs [see Article 7]; (c) Insurance
[see Article 8]; (d) Real Property Taxes [see Article
10]; and (e) Utilities [see Article 11].
4.3 Operating Expenses.
(a) "OPERATING EXPENSES" shall include all expenses and
costs of every kind and nature which Lessor shall pay or
become obligated to pay because of or in connection with
the ownership and operation of the Premises, including,
but not limited to, the Premises, parking areas and
surrounding property and supporting facilities,
including, without limitation: (i) premiums for
insurance maintained by Lessor pursuant to Article 8;
(ii) all structural and non-structural maintenance and
repair (subject, however, to Lessor's warranties
provided in Section 2.3 of the Lease), waste disposal,
janitorial and service costs associated with Lessor's
management of the parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways,
driveways, landscaped areas, striping, irrigation
systems, outdoor lighting systems, exterior fire
hydrants, fences and gates, and roof of the Premises;
(iii) a property management fee equal to 4% of the Base
Rent ("Property Management Fee"); (iv) outside legal and
accounting expenses; (v) all interior and exterior
repairs, replacements and maintenance (excluding those
paid for by proceeds of insurance or by Lessee
directly); (vi) any capital improvement, replacement or
repair which does not exceed an aggregate cost of $5,000
per item; (vii) subject to the limitations of Paragraph
18 of Addendum "A", the amortization of capital
improvements, replacements or repairs which exceed an
aggregate cost of $5,000 per item; (vii) all charges for
utilities and similar services not separately metered by
Lessee and used or consumed in the Premises; and (viii)
utilities surcharges and any other costs, levies or
assessments resulting from statutes or regulations
promulgated by any governmental authority in connection
with the use or occupancy of the Premises. Operating
Expenses do not include separately-metered utilities and
services delivered to the Premises which costs are
Lessee's sole responsibility as further defined in
Article 11.
(b) In any year after the first full year of the Term,
the amount of Operating Expenses (excluding insurance,
taxes, the Property Management Fee and capital
improvements, repairs and replacements) shall not
increase by more than five percent (5%) in any calendar
year over the amount of Operating Expenses for the
previous calendar year; provided, however, that in the
event such Operating Expenses increase by more than five
percent (5%) in any calendar year over the amount of
Operating Expenses for the previous calendar year,
Lessor may require Lessee to independently obtain a bid
for the cost of comparable services for the Premises
which is less than the five percent (5%) limit on
Operating Expenses increases and, if Lessee is unable to
obtain comparable services for the Premises at a cost
which is less than the five percent (5%) limit on
Operating Expenses increases, Lessee agrees to pay the
amount by which the lowest bid for such comparable
services exceeds the five percent (5%) limit on
Operating Expenses increases. For example, if the cost
of an item of Operating Expenses increases by 10% over
the cost of such
A-2
<PAGE> 19
services for the previous calendar year, and Lessee is
able to obtain a contract for comparable services at a
cost equal to an 8% increase over the cost of such
services for the previous calendar year, regardless of
whether Lessor elects to contract for the comparable
services, Lessee shall pay an 8% increase for such
services as part of the Operating Expenses.
(c) The cost of any capital improvements, replacements
and repairs reimbursed as Operating Expenses pursuant to
the foregoing obligations shall be amortized on a
straight-line basis (together with interest at the
interest rate of ten percent (10%) per annum on the
unamortized balance of such costs) over a period equal
to the useful life of the item (as determined by
reference to the vendor's or manufacturer's suggested
useful life for such capital item or, where such
reference does not exist, by reference to generally
accepted accounting principals, consistently applied).
(d) Lessor, at Lessor's sole cost and expense, shall
make an initial investment in general improvements to
landscaping in an amount not less than One Thousand
Dollars ($1,000) ("Initial Renovation Cost").
(e) Notwithstanding the provisions of this Paragraph
4.3, the following shall not be included within
Operating Expenses: (i) any depreciation on the
Premises; (ii) costs incurred due to Lessor's violation
of any terms or conditions of this Lease or any other
lease relating to the Premises; (iii) the Initial
Renovation Cost; (iv) damage and repairs attributable to
fire or other casualty; (v) damage and repairs covered
under any insurance policy carried by Lessor in
connection with the Premises; (vi) damage and repairs
necessitated by the negligence or willful misconduct of
Lessor or Lessor's employees, agents or contractors;
(vii) reserves for the repair, replacement or
improvement of the Premises; (viii) all principal,
interest, loan fees, and other carrying costs related to
any mortgage or deed of trust and all rental and other
payable due under any ground or underlying lease, unless
such costs are directly attributable to Lessee's, its
agents' or employees' activities in the Premises, or as
a result of a Lessee's breach or default under this
Lease; (ix) costs, including permit, license and
inspection costs, incurred with respect to the
installation of other tenants or other occupants in the
Premises, improvements made for other tenants or other
occupants of the Premises or incurred in improving,
decorating, painting or redecorating vacant space for
other tenants or other occupants of the Premises; (x)
any costs, fines, or penalties incurred due to
violations by Lessor or by any other tenant of the
Premises (other than Lessee) of any governmental rule or
authority, this Lease or any other lease of the
Premises, or due to Lessor's negligence or willful
misconduct; (xi) Landlord's costs of conforming the
Premises to the requirements of the American with
Disabilities Act and all regulations issued by the U.S.
Attorney General or other authorized agencies under the
authorization of the Americans with Disabilities Act
(unless necessitated by Lessee's improvements or
alterations to the Premises); (xii) costs of acquisition
of sculpture or other objects of art for the Premises;
(xiii) Lessor's wages, salaries or other compensation,
general corporate overhead and administrative expenses
(all of which shall be paid through the Property
Management Fee); (xiv) the cost of repairing any
structural defects in the Premises and repairing any
material defects in the design, materials or workmanship
of the Premises, including, without limitation, the
Building, which are disclosed to Lessor prior to
December 31, 1996, in accordance with Section 2.2 of the
Lease); (xv) any
A-3
<PAGE> 20
other expense, which under generally accepted accounting
principles and practices, would not be considered a
normal maintenance and operating expense. Lessor agrees
to exercise care that there be no duplication of
submittals of items of expense for which Lessee is
obligated to pay Lessor under this Lease.
(f) Lessee shall have the option, upon reasonable
advance written notice to Lessor, to separately contract
at Lessee's sole cost and expense for any services
applicable to all or any part of the Premises which can
be conveniently done, without prejudice to Lessor, and
which results in a cost savings to Lessee compared to
the cost of Lessor's contract for similar services, and
in such event, Lessee shall not be assessed for the cost
of comparable services obtained directly by Lessee for
the Premises. Notwithstanding the foregoing, Lessor
shall be responsible for the management of services
performed by Lessee's contractors pursuant to the
foregoing right as consideration for the Property
Management Fee.
(g) Any Operating Expenses attributable to a period
which falls only partially within the Lease term shall
be prorated between Lessor and Lessee so that Lessee
shall pay only that proportion thereof which the part of
such period within the Lease term bears to the entire
period.
C. Insert *3
Paragraph 5 - Security Deposit. Add the following at the end of
Paragraph 5:
From and after the tenth (10th) day following the
expiration or earlier termination of this Lease, the
Security Deposit shall accrue interest at the rate set
forth in Paragraph 19 of this Lease.
D. Insert *4
Paragraph 6.1 - Use. Add the following at the end of Paragraph 6.1:
In the event of any zoning change or change in any other
land use law or ordinance (not procured or consented to
by Lessee), which prevents Lessee from using the
Premises for scientific research and development, Lessee
shall have the right to terminate this Lease upon not
less than one hundred twenty (120) days prior written
notice to Lessor; provided, however, that if, before the
expiration of said period, Lessor is able to cure the
situation such that the Premises may be legally used for
scientific research and development, this Lease shall
remain in full force and effect. Lessee agrees to act in
good faith to assist Lessor's efforts to cure the
situation, as Lessor may reasonably request.
A-4
<PAGE> 21
E. Insert *5
Subparagraph 6.2(c) - Indemnification. Add the following at the end
of Subparagraph 6.2(c):
Notwithstanding any other provision of this Lease,
Lessor represents to the best of Lessor's actual
knowledge that there are no Hazardous Substances,
including but not limited to any solvents, metals,
petroleum, lead-based paint, PCBs, or asbestos in, on,
under or about the Premises. Notwithstanding this
representation, Lessor shall indemnify and hold Lessee
harmless against and from all liability and claims of
any kind for loss or damage to Lessee, its employees or
agents, and for expenses and fees of Lessee (including
but not limited to costs, expenses and attorneys' fees),
incurred, directly or indirectly, as a result of (1) the
negligence, willful misconduct or breach of this Lease
by any of Lessor, its agents, employees or contractors;
(2) the existence of Hazardous Substances in, on, under
or about the Premises as of the commencement of this
Lease; (3) any acts or omissions of Lessor, or other
lessees (past or future), or their officers, employees,
agents or subcontractors; and (4) any and all latent and
patent defects in the materials, design and workmanship
of the Premises of which Lessor receives actual
knowledge on or before December 31, 1996.
F. Insert *6
Paragraph 7.1 - Lessee's Obligations. In Paragraph 7.1, delete the
remainder of the paragraph starting at the beginning of the third line, and
replace with the following:
. . . keep the Premises in good order, condition and
repair during the term of the Lease, subject to ordinary
wear and tear and Paragraph 9 of the Lease, including
without limitation: interior surfaces of walls and
ceilings; wall and floor coverings; interior and
exterior windows and plate glass; window coverings;
doors; locks on closing devices; window casements and
frames; all heating, ventilation and air conditioning
systems and equipment, including leaks around ducts,
pipes, vents and other parts of the system; all
partitions, doors and door fixtures and hardware;
periodic interior painting, as determined by Lessee; all
fixtures and appurtenances including electrical,
lighting, all plumbing and plumbing fixtures; all signs,
awnings and canopies. Lessee shall maintain, at Lessee's
expense, a preventive maintenance contract providing for
the regular inspection and maintenance of the heating
and air conditioning system (including leaks around
ducts, pipes, vents, and other parts of the air
conditioning) by a licensed heating and air conditioning
contractor. It is the intention of Lessor and Lessee
that Lessee shall maintain the interior of the Premises,
at all times during the term of this Lease, in an
attractive and fully operative condition, at Lessee's
expense.
G. Insert *7
Paragraph 7.2 - Lessor's Obligations. In Paragraph 7.2, delete the
remainder of the paragraph following "Premises)" in line 3, and replace with the
following:
A-5
<PAGE> 22
and subject to Lessee's obligation to reimburse Lessor
for the Operating Expenses pursuant to Article 4, Lessor
shall repair and maintain the roof (excluding interior
ceilings), the foundations, the structural and exterior
portions of the Premises and any building in which the
Premises are located, without limitation all of the
following: exterior walls; loading docks; exterior
sidewalks and walkways; landscaped areas and irrigation
facilities; driveways and parking areas, including
resurfacing, restriping and other repairs; periodic
exterior painting, as determined by Lessor; and exterior
lighting fixtures and appurtenances; provided, however,
Lessee shall pay as Additional Rent any maintenance and
repairs necessitated by active negligence, willful
misconduct or breach of this Lease by Lessee, its
agents, servants, employees or invitees, or caused by
alterations, additions or improvements made by Tenant to
the Premises. Except as hereinafter specifically
provided, there shall be no abatement of rent, and no
liability of Lessor, by reason of any injury to or
interference with Lessee's business arising from the
making of any repairs, alterations, or improvements to
any portion of the building or the Premises. Lessor
shall not be liable for any failure to make such repairs
or to perform any maintenance unless such failure shall
persist for more than five (5) consecutive business days
after written notice of the need therefor has been given
to Lessor by Lessee. If Lessor fails to perform Lessor's
obligations under this paragraph 7.2, and such failure
materially interferes with Lessee's use of the Premises
and continues for more than five (5) consecutive
business days after Lessee provides Lessor with notice
of such failure (or such shorter period as may be
reasonable due to the nature of such failure), Lessee
may perform such obligations on Lessor's behalf, and if
Lessee so elects, Lessor shall reimburse Lessee, upon
demand, for the costs thereof (and any reasonable costs
and fees associated with Lessee's collection of such
costs). With the exception of the foregoing sentence,
Tenant waives the right to make repairs at Lessor's
expense under Section 1942 of the California Civil Code,
or under any other law, statute, ordinance now or
hereafter in effect.
H. Insert *8
Subparagraph 7.4(b) - Removal. In the first line of subparagraph
7.4(b), insert between "may" and "require" the following:
(at the time Lessor gives its consent to the
installation of such Lessee-Owned Alterations or Utility
Installations)
I. Insert *9
Subparagraph 7.4(c) - Surrender/Restoration. Add the following at
the end of subparagraph 7.4.(c):
Any Trade Fixtures and Equipment purchased by Lessee and
installed in the Premises, which Lessee intends to
remove from the Premises upon the expiration or earlier
termination of this Lease, shall be separately
identified on a list ("Equipment List") to be compiled
by Lessee and acknowledged by Lessor. The Lease shall be
amended to incorporate the Equipment List upon its
completion. The Trade Fixtures and Equipment on the
Equipment List
A-6
<PAGE> 23
shall be and remain the sole property of Lessee. Said
Fixtures and Equipment may be removed from the Premises
by Lessee at any time during the term of this Lease.
J. Insert *10
Subparagraph 8.2(b) - Carried By Lessor. Add the following at the
end of subparagraph 8.2(b):
Within ten (10) days after the date of this Lease,
Lessor shall provide Lessee with a certificate
evidencing the existence in an amount of Lessor's
liability insurance for the Premises. No such policy
shall be cancelable or subject to modification except
after thirty (30) days prior written notice to Lessee.
Lessor and Lessee agree that Lessor shall initially act
as the Insuring Party; provided, however, that Lessee
may, in its reasonable discretion and at any time, elect
to become the Insuring Party upon ninety (90) days
advance written notice to Lessor.
K. Insert *11
Paragraph 8.6 - Waiver of Subrogation. Add the following at the end
of paragraph 8.6:
Lessor and Lessee agree to have their respective
insurance companies issuing insurance pursuant to this
Lease, waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case
may be, so long as the insurance is not invalidated
thereby.
L. Insert *12
Subparagraph 9.6(a) - Abatement of Rent; Lessee's Remedies. Add the
following at the end of subparagraph 9.6(a):
. . . , except for damages connected with Lessor's
negligence, willful misconduct, or breach of this Lease.
M. Insert *13
Subparagraph 9.6(b) - Abatement of Rent; Lessee's Remedies. Add the
following at the end of subparagraph 9.6(b):
If Lessor reasonably determines that repairs will
require more than one hundred eighty (180) days to
complete, or if repairs are not substantially completed
within one hundred eighty (180) days following the
commencement thereof, Lessee may, at its option,
terminate this Lease by giving at least thirty (30) days
prior written notice to Lessor specifying the
termination date. If, prior to the end of the initial
term of the Lease, this Lease shall terminate because of
Lessor's failure to repair or restore the Premises or
because of event of condemnation under paragraph 14,
then Lessor shall provide Lessee with funds equal to the
unamortized portion of Lessee's contribution to the cost
of the initial improvements (paid from the Tenant
Improvement Account described in Addendum paragraph 7),
which contribution shall be amortized on a straight-line
basis at an interest rate of 10% over the initial term
of the Lease.
A-7
<PAGE> 24
N. Insert *14
Paragraph 9.7 - Hazardous Substance Conditions. Add the following in
line 7 of paragraph 9.7, at the end of the first sentence:
. . . In which event Lessor shall reimburse Lessee for
Lessee's actual cost of moving Lessee's equipment and
furnishings to Lessee's replacement Premises and Lessor
waives the terms and conditions of Subparagraph 7.4(c).
O. Insert *15
Paragraph 10.2 - Definition of "Real Property Taxes". Add the
following at the end of paragraph 10.2:
Notwithstanding the foregoing, Real Property Taxes shall
not include (a) inheritance, estate or franchise taxes
imposed upon or assessed against the Premises, (b) taxes
on the net income of the Lessor, and (c) taxes
attributable to the first change in the ownership of the
Premises during the term of the Lease.
P. Insert *16
Paragraph 13.2 - Remedies. Add the following in line 6 of paragraph
13.2 after "cashier's check":
. . . ; provided, however, that Lessee shall not be
required to make future payments by cashier's check if,
no more than once in any calendar year, Lessee cures
such Breach by providing Lessor with funds in the amount
of the full payment due Lessor within twenty-four (24)
hours following Lessee's receipt of Lessor's notice that
a check given by Lessee has not been honored by the bank
upon which it is drawn.
Q. Insert *17
Paragraph 13.2(a) - Remedies. Add the following in line 9 of
paragraph 13.2(a) after "Premises":
. . . to the condition required by subparagraph 7.4(c),
. . .
R. Insert *18
Paragraph 14 - Condemnation. Add the following in line 6 of
paragraph 14 after "possession":
. . . or Lessee may elect to continue this Lease with
Base Rent abated in proportion to the adverse effect of
the condemnation on Lessee's business in the Premises,
as reasonably determined by Lessee.
A-8
<PAGE> 25
S. Insert *19
Paragraph 14 - Condemnation. Add the following in line 12 after
"Lessee's Trade Fixtures":
. . . and any Lessee-Owned Alterations and/or Utility
Installations which Lessee would be entitled to remove
on expiration or earlier termination of this Lease.
T. Insert *20
Paragraph 16 - Tenancy Statements. Add the following in line 4 of
subparagraph 16.2 after "three (3) years":
. . . ; provided that Lessor acknowledges that Lessee's
financial statements received prior to the date of this
Lease are in such reasonably acceptable form.
U. Insert *21
Paragraph 17 - Lessor's Liability. Add the following at the end of
paragraph 17:
Notwithstanding the foregoing, a Lessor whose interest
in this Lease or the Premises is foreclosed by a
foreclosure or execution sale shall not be relieved of
liability unless the party who acquires the Lessor's
interest agrees to recognize Lessee's interest and
rights in and under this Lease and not to disturb
Lessee's possession hereunder so long as Lessee is not
in default hereunder.
V. Insert *22
Paragraph 21 - Rent Defined. Add the following in Paragraph 21 after
"this Lease":
. . . (with the exception of unused portions of the
Security Deposit and the Letter of Credit) . . .
W. Insert *23
Paragraph 30.3 - Non-Disturbance. Add the following in line 2, after
"assurance":
. . . in a form reasonably acceptable to Lessee . . .
X. Insert *24
Paragraph 32 - Lessor's Access. Add the following at the end of
paragraph 32:
Lessor shall not permit such activities to interfere
with Lessee's (or any sublessee's) use of the Premises.
A-9
<PAGE> 26
Y. Insert *25
Paragraph 34 - Signs. Add the following at the end of paragraph 34:
Lessee shall be entitled to install building and
monument signs for the Premises as part of the proceeds
of the Tenant Improvement Account and such signs shall
be installed in conformance with all sign ordinances and
regulations. All such signage shall be reviewed and
approved by Lessor prior to manufacture and
installation. Lessor's approval of signage shall not be
unreasonably withheld.
II. THE FOLLOWING ADDENDA PARAGRAPHS 1 THROUGH 20 ARE HEREBY INCORPORATED INTO
THE LEASE.
1. BASE RENT SCHEDULE (EXCLUSIVE OF T.I. ALLOWANCE): Lessee shall pay Base Rent
for the rentable square footage of the Premises according to the schedule
outlined below:
<TABLE>
<S> <C>
Year 1: $0.70/sq ft/month/NNN
Year 2: $0.70/sq ft/month/NNN
Year 3: $0.75/sq ft/month/NNN
Year 4: $0.80/sq ft/month/NNN
Year 5: $0.83/sq ft/month/NNN
Year 6: $0.86/sq ft/month/NNN
Year 7: $0.90/sq ft/month/NNN
Year 8: $0.94/sq ft/month/NNN
Year 9: $0.98/sq ft/month/NNN
Year 10: $1.02/sq ft/month/NNN
</TABLE>
The Premises contain an interior space area of Thirty-Four Thousand Two Hundred
Forty-Four (34,244) rentable square feet as shown on Exhibit "B" attached to the
Lease and by this reference incorporated herein. Lessee may confirm the
measurements of the rentable square footage of the Premises by measuring the
Premises in accordance with BOMA standards ANSIZ65.1 - 1980 and, if Lessee
disputes the Lessor's measurements, Lessee shall submit Lessee's measurements
and dispute to Lessor within thirty (30) days after the Commencement Date. If
Lessor and Lessee fail to agree on the measurement of the Premises within ten
(10) days, Lessor and Lessee shall resolve the dispute by submitting the dispute
to a third party acceptable to Lessor and Lessee and familiar with BOMA
standards, who shall measure the Premises and submit its calculation to Lessor
and Lessee within ten (10) days. Any changes in square footage to the Premises
shall be incorporated into this Lease by an amendment hereto entered into by the
parties.
2. SECURITY DEPOSIT & PREPAID RENT: Upon the execution of the Lease, Lessee
shall deposit with Lessor a security deposit in an amount equal to Sixty Five
Thousand Dollars ($65,000.00)("Security Deposit"). During such portion of the
Term as the Letter of Credit (as defined in Section 3 below) is available to the
Lessor to cover Lessee's obligations under the Lease, the Security Deposit shall
be held by Lessor in addition to Lessor's security deposit in the form of the
Letter of Credit made by Lessee in favor of Lessor (as set forth below) and,
collectively, the Security Deposit and the amount secured by the Letter of
Credit shall constitute the "Security Deposit." Upon the expiration or earlier
termination of the Letter of Credit (pursuant to the terms set forth below),
such portion of the Security Deposit in excess of Thirty Two Thousand Five
Hundred Dollars ($32,500.00) which has not been applied by Lessor to unpaid rent
or other Lessee obligations under the Lease shall be refunded to Lessee.
Commencing with the date of this Lease,
A-10
<PAGE> 27
that portion of the Security Deposit held by Lessor in the amount of Thirty Two
Thousand Five Hundred Dollars ($32,500.00) shall be held in Lessor's deposit
account with a financial institution acceptable to Lessee and shall accrue
interest at the rate of five percent (5%) per annum, and all interest accrued on
the Security Deposit shall be paid over to Lessee by Lessor within five (5)
business days of the last day of each calendar year. So long as Lessor is a
single asset entity with the Premises as its sole asset, Lessor may commingle
the Security Deposit in its general deposit accounts. Upon sale or transfer of
the Premises by Lessor, Lessor shall remain liable for the return of the unused
portion of the Security Deposit unless Lessor transfers the Security Deposit to
the transferee of the Premises and the transferee assumes, in writing, Lessor's
Lease obligations. Lessor may, but shall not be required to, apply all or part
of the Security Deposit and/or the Letter of Credit (by drawing upon the Letter
of Credit and/or by using the amounts held by Lessor as the Security Deposit) to
any unpaid rent or other charges due from Lessee or to cure any other defaults
of Lessee. If Lessor uses any part of the cash portion of the Security Deposit
for such purposes, Lessee shall deposit additional funds to restore the Security
Deposit to its then-current amount within ten (10) days after Lessor's written
request.
3. LETTER OF CREDIT. On or before the date on which Lessor funds its portion of
the Tenant Improvement Account (as set forth below), Lessee shall provide Lessor
with one or more letter(s) of credit (individually and, if more than one,
collectively, the "Letter of Credit") in a form reasonably satisfactory to
Lessor and in the aggregate amount of Three Hundred Twenty-Five Thousand Dollars
($325,000.00), payable pursuant to the terms and conditions set forth herein and
issued by a California bank previously approved by Lessor. Lessor shall pay for
the costs of the establishment and maintenance of the Letter of Credit, provided
that such costs do not exceed one percent (1%) per annum of the then current
value of the Letter of Credit. The Letter of Credit shall have an initial term
of not less than twelve (12) months and shall be renewable for up to two (2)
successive twelve (12) month periods; provided, however, that the aggregate
amount of the Letter of Credit may be reduced to the following amounts on the
following dates:
<TABLE>
<S> <C>
First Lease Year $325,000.00
Second Lease Year $216,666.67
Third Lease Year $108,333.33
Fourth Lease Year $ 0.00
</TABLE>
With the exception of the conditions for early termination of the Letter of
Credit set forth below, the Letter of Credit shall be irrevocable, unconditional
and payable upon demand upon presentation of Lessor's draft, accompanied by the
original Letter of Credit together with a notarized statement, signed by an
authorized trustee or officer of Lessor, stating that Lessor has the right to
draw under the Letter of Credit. Partial draws shall be permitted. Lessor shall
have the right to draw on the Letter of Credit in the event that: (a) Lessor
applies all or part of the Security Deposit to any unpaid rent or other charges
due from Lessee or to cure any other defaults of Lessee as set forth above; (b)
Lessee is in default under the Lease after expiration of any grace period; or
(b) Lessee fails to renew the Letter of Credit, if required for the Letter of
Credit to conform to the aggregate amount requirements set forth above, at least
one (1) month prior to its expiration date.
(a) Effect of Lessee Breach. Notwithstanding the foregoing
schedule for reduction of the amount Letter of Credit, in the event of a Lessee
Breach of this Lease which remains uncured for the applicable cure period set
forth in the Lease, the amount secured by the Letter of Credit on the date of
such uncured Breach shall not be reduced in accordance with the foregoing
schedule, but shall continue as part of Lessee's Security Deposit until Lessee
cures such Breach and the earlier of: (a) the expiration of the initial term of
the Lease; or (b) Lessee achieves any of the Lessee financing criteria set forth
in subparagraph 3(b) below.
A-11
<PAGE> 28
(b) Lessee Financing Milestones. Notwithstanding anything to the
contrary in this Lease, the Letter of Credit shall be terminated by Lessor and
Lessee, by written notice to the issuer of the Letter of Credit, and the
original Letter of Credit shall returned to Lessee upon presentation of
reasonable proof to Lessor, in writing and certified by Lessee's chief financial
officer (or an officer of Lessee in similar capacity), of Lessee's satisfaction
any of the following criteria for early termination of the Letter of Credit: (i)
Lessee demonstrates a tangible net worth of $15 million or greater; (ii) Lessee
demonstrates aggregate revenue of $3 million or greater for any twelve (12)
consecutive months; or (iii) Lessee receives additional capital financing in an
amount not less than Ten Million Dollars ($10,000,000.00), through venture
capital sources, or other financing sources (but not including the "callable"
portion of the capital funding which Lessee received in August 1995).
4. EARLY OCCUPANCY: Lessee may occupy that approximately 10,000 rentable square
foot portion of the Premises designated by Lessee as the "Early Occupancy Space"
on Exhibit "C" attached hereto, for the purpose of making improvements to the
Premises and utilizing office space until the Commencement Date, immediately
upon the later of (i) Lease execution and (ii) close of escrow for Lessor's
purchase of the Premises from Campson Corp. All of the terms and conditions of
the Lease shall apply during the term of such early occupancy, except that
Lessee shall pay Base Rent (and reimburse Lessor's NNN expenses) for the Early
Occupancy Space only commencing on the later of (i) the date of Lessee's actual
occupancy of the Early Occupancy Space and (ii) January 1, 1996.
5. ENVIRONMENTAL ASSESSMENT. Prior to Lessee's occupancy of the Premises, Lessor
shall conduct an "Entrance Assessment," consisting of a Phase I Environmental
Assessment and such other tests as are listed on the "Assessment Criteria"
attached hereto as Addendum B, by an environmental consultant reasonably
acceptable to Lessee. Lessee shall receive a copy of the report(s) of the
Lessee's Entrance Assessment, and said report(s) shall be deemed to be the
baseline physical condition of the Premises upon Lessee's occupancy. The cost of
the Lessee's Entrance Assessment shall be paid by Lessor. Prior to Lessee's
surrender of the Premises, Lessee shall conduct an "Exit Assessment," consisting
of a Phase I Environmental Assessment and such other tests as are listed on the
Assessment Criteria attached hereto as Addendum B, by an environmental
consultant reasonably acceptable to Lessor. Lessor shall receive a copy of the
report(s) of the Lessee's Exit Assessment, and said report(s) shall be deemed
the physical condition of the Premises upon Lessee's surrender of the Premises.
The cost of the Lessee's Exit Assessment shall be paid by Lessee. Lessee's
Entrance and Exit Assessments shall be performed by an independent environmental
consultant with expertise in performing environmental analyses of biotechnology
laboratory and manufacturing facilities. In the event that the Exit Assessment
indicates contamination of the Premises resulting from Lessee's occupancy and/or
use of the Premises, Lessee shall take such action as may be reasonable under
the circumstances to restore the Premises to the condition evidenced by the
Entrance Assessment.
6. TENANT IMPROVEMENT ACCOUNT: On or before January 15, 1996, Lessor shall
provide Lessee with written proof, reasonably acceptable to Lessee, of a funding
commitment from a lender reasonably acceptable to Lessee for a loan in the
amount of Lessor's deposit into the Tenant Improvement Account ("Funding
Commitment"). On or before February 20, 1996, Lessor and Lessee shall each
deposit cash in the amount of Six Hundred Fifty Thousand and no/100 Dollars
($650,000) into one or more escrow accounts totalling $1,300,000 (collectively,
the "Tenant Improvement Account") with one or more escrow holders reasonably
acceptable to both parties (collectively, the "Escrow Holder"). The Tenant
Improvement Account shall be held by the Escrow Holder for distribution pursuant
to the terms of this Lease, including, without limitation, the Work Letter. The
Tenant Improvement Account shall be used to pay for Lessee's improvements to the
Premises ("Tenant Improvements") in accordance with that certain Work Letter
Agreement attached hereto as
A-12
<PAGE> 29
Exhibit "D". Any unused portion of the Tenant Improvement Account shall be
returned equally to both Lessor and Lessee and interest accruing on such
deposited funds will accrue to the benefit of both Lessor and Lessee. Lessee
shall submit plans and specifications to Lessor for such improvements and shall
complete such improvements in accordance with the Work Letter Agreement. All of
the funds provided by Lessor which are utilized by Lessee shall be repaid by
Lessee over the entire term of the Lease, amortized on a straight-line basis at
an interest rate of 10% per annum, payable monthly ("Lessor Reimbursement").
Base Rent, according to the terms of the Lease, shall mean the rent schedule
outlined in Section 1 above, together with the monthly payment of the amortized
Lessor Reimbursement. For example, if 100% of the $650,000 contributed by Lessor
is utilized by Lessee, the Base Rent shall be equal to the Base Rent amount set
forth in Section 1 above, plus $0.25/sq. ft./month.
7. EXISTING IMPROVEMENTS: The Premises will include the existing improvements,
furnishings and equipment left in the Building by the prior lessee (Quidel)
("Existing Improvements"). Lessor agrees, at Lessor's cost and expense, to pay
any costs associated with acquiring such Existing Improvements from Quidel, up
to a maximum of $30,000.00. If the cost of such Existing Improvements exceeds
$30,000, the overage shall be paid from the Tenant Improvement Account, provided
that Lessor first obtains Lessee's written approval of such additional expense.
In no event shall the amount paid from the Tenant Improvement Account for the
Existing Improvements exceed $20,000.00. Any costs of the Existing Improvements
exceeding $50,000 shall be Lessor's sole expense.
8. TRANSFER TO AFFILIATE PERMITTED. Any provision in this Lease to the contrary
notwithstanding, Lessor's consent shall not be required for a Transfer to any
person or entity who controls, is controlled by or is under common control with
Lessee, or to any corporation resulting from the merger or consolidation with
Lessee or to any person or legal entity which acquires all the assets of Lessee
as a going concern of the business being conducted on the Premises (each of the
foregoing is hereinafter referred to as a "Lessee Affiliate"); provided that
before such assignment shall be effective, (a) said Lessee Affiliate shall
assume, in full, the obligations of Lessee under this Lease, (b) Lessor shall be
given written notice of such assignment and assumption and (c) the use of the
Premises by the Lessee Affiliate shall be as set forth in Paragraph 1.8. For
purposes of this paragraph, the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management,
affairs and policies of anyone, whether through the ownership of voting
securities, by contract or otherwise. Lessor's entitlements to profits resulting
from a sublease of the premises set forth in Section 11 below shall not apply to
a sublease by Lessee to a Lessee Affiliate.
9. SUBLETTING: Lessee may sublease a portion or all of the Premises throughout
the initial term of the lease with Lessor's prior written approval, which
approval shall not be unreasonably withheld. Any net profits resulting from such
sublease shall be shared equally by Lessor and Lessee (profits shall be the net
cash benefit of the sublease, taking into account all costs that may apply
including leasing commissions, improvements, rental abatements, etc.). Lessee
may not, without obtaining Lessor's written approval which may be withheld in
Lessor's sole discretion, sublease the Premises for a duration beyond the
termination date of the initial term of the lease.
10. OPTION TO EXTEND. Lessee shall have three (3) consecutive options to extend
the Term of this Lease for one (1) additional period of five (5) years each
(each of such options are referred to herein individually as a "Premises
Option"). The period of each of the Premises Options is referred to herein
individually as an "Option Term". Lessee shall have no right or interest to
exercise the Premises Option unless, not later than two hundred seventy (270)
days prior to the end of the then-current Term or Option Term, Lessee provides
Lessor with (a) written notice of its exercise of
A-13
<PAGE> 30
the Premises Option (the "Extension Notice"). Base Rent payable during the first
year of each Option Term shall be an amount equal to ninety-five percent (95%)
of "Market Rent" (as defined in subparagraph (a) below), on the date of the
Extension Notice. All of the terms, covenants, conditions, provisions and
agreements of the Lease shall apply to the Option Term. Annual Base Rent after
the first year of each Option Term shall be as set forth in subparagraph (c)
below. Time is of the essence with respect to Lessee's exercise of each of the
Premises Options.
(a) MARKET RENT. As used herein, "Market Rent" shall mean the
price that a ready and willing tenant would pay, at commencement of the Option
Term, as monthly base rent to a ready and willing landlord if such office space
were offered for lease on the open market for a reasonable period of time and be
the sum of the fair market monthly rental rate per rentable square foot
multiplied by the Rentable Area of the Premises determined as follows: (a) as
mutually agreed by Lessor and Lessee within ten (10) days of Lessor's delivery
to Lessee of Lessor's opinion of the Market Rent for the first year of the
Option Term ("Lessor Rent Notice")(which shall be delivered to Lessee within ten
(10) days of receipt of Lessee's written Extension Notice); or (b) in the event
that Lessor and Lessee are unable to so agree within such ten (10) day period,
the Market Rent shall be determined by concurrent appraisals pursuant to
subparagraph (b) below. The Market Rent shall be determined by considering (i)
the highest and best use of the Premises, (ii) the duration of the Option Term,
(iii) the quality and prestige of the Premises (as then improved and maintained
as required by the terms and conditions of this Lease), (iv) recent monthly
rental rates for buildings of similar size and location, (v) anticipated CPI
Index changes from the date of the Market Rent determination to the date of the
actual Option Term Commencement; (vi) all other relevant terms and conditions of
this Lease.
(b) MARKET RENT APPRAISAL PROCEDURE.
(i) If Lessee rejects the Market Rent proposed by Lessor in
Lessor's Rent Notice, Lessor and Lessee shall attempt to agree in good faith
upon a single appraiser not later than five (5) days after the Lessor receives
notice of Lessee's rejection of Lessor's proposed Market Rent ("Lessee's
Rejection Notice"), which date of receipt shall be within ten (10) days of
Lessor's delivery of Lessor's Rent Notice. If Lessor and Lessee are unable to
agree upon a single appraiser within such time period, then Lessor and Lessee
shall each appoint one appraiser not later than ten (10) days after Lessor's
receipt of Lessee's Rejection Notice. Within five (5) days thereafter, the two
appointed appraisers shall appoint a third appraiser. Lessor and Lessee shall
instruct the appraiser(s) to complete the determination of the Market Rent not
later than fifteen (15) days after all appraisers have been appointed.
(ii) If either Lessor or Lessee fails to appoint its
appraiser within the prescribed time period, the single appraiser appointed
shall determine the Market Rent of the Premises for the first year of the Option
Term. If both parties fail to appoint appraisers within the prescribed time
periods, then the first appraiser thereafter selected by a party shall determine
the Market Rent of the Premises for the first year of the Option Term.
(iii) Lessor and Lessee shall each bear the cost of its own
appraiser and the parties shall share equally the cost of the single or third
appraiser, if applicable. All appraisers so designated herein shall have at
least five (5) years' experience in the appraisal of similar office buildings in
the San Diego area and shall be members of professional organizations such as
MAI or equivalent.
(iv) If a single appraiser is chosen, then such appraiser
shall determine the Market Rent of
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<PAGE> 31
the Premises for the first year of the Option Term. Otherwise, the Market Rent
of the Premises for the first year of the Option Term shall be the arithmetic
average of (2) of the three (3) appraisals which are closest in amount, and the
third appraisal shall be disregarded.
11. OPTION TERM ESCALATION. During the Option Term, Base Rent shall
be subject to an annual increase, effective as of each anniversary of the Term
Commencement Date ("Adjustment Date"), to reflect any increase in the cost of
living, in accordance with the "Index" (as hereinafter defined), using as the
"Base Month" (Base Index) the month ninety (90) days prior to the date which is
one year prior to the applicable Adjustment Date, and using as the "Comparison
Month" (Comparison Index) the month ninety (90) days prior to the applicable
Adjustment Date. As of each Adjustment Date, the Base Rent payable during the
ensuing twelve (12) month period shall be determined by increasing the initial
Base Rent by a percentage equal to the percentage increase, if any, in the
Comparison Index over the Base Index; provided, however, that in no event shall
the Base Rent payable in any year of an Option Term be less than Base rent for
the immediately preceding year of the Option Term. When the Base Rent payable as
of each Adjustment Date is determined, Lessor shall promptly give Lessee written
notice of such adjusted Base Rent and the manner in which it was computed. The
Base Rent as so adjusted from time to time shall be the "Base Rent" for all
purposes under this Lease. As used herein, the term "Index" means the Consumer
Price Index for all Urban Consumers (Los Angeles-Anaheim-Riverside Area; base
reference period 1982-84 = 100), as published by the United States Department of
Labor, Bureau of Labor Statistics (or, in the event the Index is not issued by
the Bureau of Labor Statistics, such replacement Consumer Price Index as Lessor
may reasonably determine).
12. RIGHT OF FIRST OFFER. If, at some time during the term of this Lease,
Landlord shall desire to sell all or any part of the Premises, Landlord shall
deliver to Tenant written notice of Landlord's intention to sell and, for a
period of sixty (60) days following delivery of the notice, Landlord shall
negotiate in good faith solely with Tenant for the sale of the Premises. If, at
the expiration of the sixty (60) day period, Landlord and Tenant have not
executed a mutually acceptable written agreement pertaining to the sale of the
Premises, then Landlord shall thereafter be free to negotiate with any other
person or entity for the sale or exchange of the Premises on whatever terms and
conditions Landlord may choose. If Landlord shall fail to provide to Tenant the
notice of intention to sell the Premises prior to the date Landlord executes an
irrevocable purchase agreement with another person or entity for the sale of the
Premises, Tenant shall not have any right, claim or action against the buyer
and/or the Premises. The right of first offer shall only be effective one (1)
time and, following the expiration of the sixty (60) day period without a
contract being signed by Landlord and Tenant, the right of first offer shall
expire and be of no further force or effect.
13. EARLY TERMINATION. Lessee shall have a one time right to terminate this
Lease as of the first day of the seventy-second (72nd) month of the Lease Term
if Lessee wishes to exercises its right to terminate this Lease pursuant to this
Section, Lessee shall provide written notice to Lessor at least nine (9) months
prior to the effective date of the termination. If Lessee fails to deliver to
Lessor its notice of exercise of its right of termination within the prescribed
time period, such right of termination shall lapse, and there shall be no
further right to terminate the Lease Term.
14. DISCLOSURE: Lee M. Chesnut, Co-Trustee of The Chesnut Family Trust, which is
the sole shareholder of Lessor, is a licensed real estate broker in the state of
California, acting in the capacity of a principal in this transaction.
15. BROKERS: CombiChem, Inc., herein described as Lessee is not currently
represented by a real estate brokerage company but was earlier represented by
Mr. Jeff Abramson of Business Real Estate. However, the relationship with Mr.
Abramson was terminated by written notice. Campson Corporation, herein described
as Lessor is exclusively represented by David Odmark of Business Real
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<PAGE> 32
Estate Brokerage Company and no other parties. Commissions shall be paid by
Lessor according to separate agreement.
16. AMERICANS WITH DISABILITIES ACT: Subject to the limitations on the time for
delivery of notice of non-compliance of the Premises with applicable laws as set
forth in Section 2.3 of the Lease, Lessor warrants that the offices rooms
buildings, structures, and adjacent property owned by lessor, including all
parking lots, walkways, entrances, hallways and other public spaces, elevators,
and other devices or pathways for ingress and exit to the leased property, that
might be used by customers, clients, invitees of Lessee and the general public,
conform to all the requirements of the American with Disabilities Act and all
regulations issued by the U.S. Attorney General or other authorized agencies
under the authorization of the Americans with Disabilities Act. The Lessor
promises to reimburse and indemnify and defend the Lessee for any expenses
incurred because of the failure of the leased premises and adjacently owned
property to conform with the above cited law and regulations, including the
costs of making any alterations, renovations, or accommodations required by the
American with Disabilities Act, or any governmental enforcement agency, or any
court, any and all fines, civil penalties, and damages awarded against the
Lessee resulting from violations of the above cited law and regulations, and all
reasonable legal expenses incurred in defending claims made under the above
cited law and regulations, including reasonable attorney's fees.
17. CAPITAL REPAIRS/RENOVATION EXPENSES: Lessor shall seek the
concurrence/approval of Lessee (such concurrence/approval shall not be
unreasonably withheld) prior to incurring large capital repair/renovation costs
(i.e. re-roofing, parking lot resurfacing, painting) which would be reimbursable
by Lessee according to the provisions of the Lease. For purposes of this
paragraph, it shall not be unreasonable for Lessee to disapprove any capital
repair/renovation costs that: (a) do not result in a reduction of Lessee's costs
of maintaining the Premises; (b) are not required to keep the Premises, and
every part thereof, in good order, condition and repair; (c) are not required
due to equipment failure or expiration of the useful life of a capital item (as
determined by reference to the vendor's or manufacturer's suggested useful life
for such capital item or, where such reference does not exist, by reference to
generally accepted accounting principals, consistently applied); or (d) are
capital costs not normally payable by tenants of as tenant costs under leases of
comparable premises in the San Diego metropolitan area. All work requiring
Lessee's approval shall be performed only by contractors and subcontractors
approved by Lessee in its reasonable discretion in a process by which the Lessor
shall solicit bids from at least three (3) sources and will select the
lowest-bid vendor/contractor unless in Lessor's reasonable discretion, such
lowest-bidder vendor/contractor does not meet reasonable standards established
by Lessor as to reputation, responsiveness, directly relevant experience,
knowledge and/or personnel qualifications.
18. LESSEE'S AUDIT RIGHTS. At any time within twelve (12) months of Lessee's
receipt of any statement from Lessor relating to Lessor's reimbursable expenses,
Lessor shall furnish Lessee following Lessee's written request therefor, but no
more than twice in any calendar year, including invoices and other source
documents relating to such reimbursable expenses. The audit shall be conducted
by a certified public accountant selected by Lessee. Such audit shall be limited
to the items necessary to a determination of the applicable reimbursable
expenses. In any event, if it is determined that Lessee was overcharged by more
than two percent (2%), such overcharge shall entitle Lessee to credit against
its next payment of Lessor's reimbursable expenses the amount of the overcharge
and the costs associated with the audit (and, if such credit occurs following
the expiration of the Term, Lessor shall promptly pay the amount of such credit
to Lessee). If the audit determines that the Lessee was overcharged less than
two percent (2%), such overcharge shall entitle Lessee to credit against its
next payment of Lessor's reimbursable expenses the amount of the overcharge and
Lessee shall pay for all costs associated with the audit. If the audit shall
determine that Lessee was
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<PAGE> 33
undercharged for the Lessor's reimbursable expenses, Lessee shall promptly pay
the amount of such undercharge to Lessor and Lessee shall pay for all costs
associated with the audit.
[Remainder of This Page Intentionally Left Blank]
A-17
<PAGE> 34
[SIGNATURE PAGE TO ADDENDUM A]
AGREED AND ACCEPTED
<TABLE>
<CAPTION>
<S> <C>
LESSOR: LESSEE:
CAMPSON CORPORATION, a California COMBICHEM, INC., a California
corporation corporation
/s/ Lee M. Chestnut /s/ Gail Erwin
- ------------------------------------------ ------------------------------------------
By: Lee M. Chestnut By: Gail Erwin
---------------------------------------- ----------------------------------------
Title: President Title: Controller
------------------------------------- -------------------------------------
Date Signed: 12-27-95 Date Signed: 12/27/95
------------------------------- -------------------------------
</TABLE>
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<PAGE> 35
ADDENDUM "B"
ENTRANCE/EXIT ASSESSMENT CRITERIA
I. The Phase I Environmental Site Assessment prepared by SEACOR, and
dated August 30, 1994, shall be updated by Lessor as part of the "Entrance
Assessment," which shall be prepared by a consultant other than SEACOR. The
updated Phase I Assessment shall be consistent with the American Society for
Testing Materials (ASTM) Standard E-1527 and shall, by its terms, allow the
following parties to rely upon its conclusions: Campson Corporation and
CombiChem, Inc.
II. For purposes of compliance with the requirements of Section 6 of
the Addendum "A" to the Lease, the term "Assessment Criteria" with respect to
the Premises shall refer to, and include, the following studies and assessments:
A. The following additional assessments, inspections and
monitoring plans:
1. Interior Site Assessment consisting of a visual
inspection of all surfaces (floors, walls, ceiling
tiles, benches, interior of cabinets and fume hoods)
for signs of contamination and deterioration. Visual
inspection of all bench and hood sinks and readily
accessible drain lines for signs of deterioration,
loss of integrity and leakage. The Interior Site
Assessment shall include detailed written
documentation of all observations and dated photos to
document the existing condition thereof.
2. Wastewater Collection System Assessment consisting of
a flush and clean-out of all discharge piping and
traps with observation of effluent during the
clean-out. Videotaping of the Wastewater Collection
System shall be required along with a written report
for each ten foot (10') piping segment.
3. In order to verify that there is no contamination of
the laboratory hoods and exhaust system, an inspection
shall be made consisting of an inspection of the
laboratory hoods and exhaust system with detailed
documentation of all observances, including without
limitation, observed solids, liquids, odors or
Hazardous Materials entrapment. Such inspection shall
include inspection of the roof area to determine the
existence of any deterioration from condensation of
hazardous materials in the exhaust system.
<PAGE> 36
EXHIBIT "A"
LEGAL DESCRIPTION OF PREMISES
PARCEL 1:
LOT 4 OF MIRAMAR POINT INDUSTRIAL PARK UNIT NO. 2, IN THE CITY OF SAN DIEGO,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 10055,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, ON APRIL 8,
1981.
PARCEL 2:
AN EASEMENT FOR THE JOINT PURPOSES OF INGRESS AND EGRESS OVER AND ACROSS THE
EASTERLY 75 FEET OF THE SOUTHERLY 20 FEET OF LOT 3 OF MIRAMAR POINT INDUSTRIAL
PARK UNIT NO. 2, AS FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO
COUNTY, ON APRIL 8, 1981.
SAID EASEMENT IS APPURTENANT TO AND FOR THE BENEFIT OF LOT 4 OF MIRAMAR POINT
INDUSTRIAL PARK UNIT NO. 2, ON SAID MAP 10055.
<PAGE> 37
EXHIBIT "B"
PREMISES FLOOR PLAN
Floor Plan Diagram
<PAGE> 38
EXHIBIT "C"
EARLY OCCUPANCY SPACE
Diagram
<PAGE> 39
EXHIBIT "D"
WORK LETTER AGREEMENT
This Work Letter Agreement ("Work Letter") supplements that certain
STANDARD INDUSTRIAL/COMMERCIAL SINGLE TENANT LEASE -- NET, dated December 22,
1995, made by and between CAMPSON CORPORATION, a California corporation, as
"Lessor," and COMBICHEM, INC., a California corporation, as "Lessee" (the
"Lease"), covering certain premises described in the Lease (the "Premises"). All
terms not defined herein shall have the same meaning as set forth in the Lease.
All notices required to be given hereunder shall be delivered in accordance with
the requirements for notice set forth in the Lease.
1. Construction of Improvements. Lessee shall furnish and install within the
Premises those items shown on the plans, drawings and specifications finally
approved by Lessor and Lessee pursuant to Paragraph 2 below (the "Improvements")
in compliance with all applicable codes, laws and regulations. In making or
allowing to be made the work of the Improvements, Lessee shall comply with all
of the insurance requirements of the Lease.
2. Construction Plans for Premises. Final plans and drawings required by this
Work Letter shall be prepared by Lessee subject to Lessor's review and approval,
which approval shall not be unreasonably withheld.
2.1 Cost of Planning Services. The cost of the space planning,
architectural and engineering services (including "value engineering" services)
relating to the preparation of the Preliminary Plans and "Final Plans" (as
defined below), which shall be prepared by a "Space Planner" selected by Lessee,
shall be included in the cost the Improvements to be incurred by Lessee subject
to reimbursement by Lessor up to the amount of the Tenant Improvement Account
(as defined below).
2.2 Preparation of Final Plans. Lessee shall have prepared complete
architectural plans, drawings and specifications and complete engineering,
mechanical, structural and electrical working drawings for all of the
Improvements for the Premises (collectively, the "Final Plans"), showing: (a)
the subdivision (including partitions and walls), layout, lighting, finish and
decoration work (including carpeting and other floor coverings) for the
Premises; (b) all internal and external communications and utility facilities
which will require conduiting or other improvements from the Building shell,
existing systems or equipment and/or within common areas; and (c) all other
specifications for the Improvements. Lessor and Lessee shall make all reasonable
efforts to reduce the costs of the Improvements to less than the Tenant
Improvement Account described in Subparagraph 3.1, below. Lessee may select
different materials of equal or greater value in place of Lessor's standard
building materials provided such selection is indicated on the Final Plans. The
Final Plans shall be submitted to Lessor for Lessor's reasonable approval. The
cost of preparing or revising the Final Plans, after Lessor's approval of such
Final Plans, shall be included in the cost of Improvements. Within two (2)
business days after delivery of the Final Plans, Lessor shall deliver notice to
Lessee of approval or reasonable disapproval of the Final Plans. The failure of
Lessor to deliver notice of disapproval within two (2) business days shall be
deemed to be a Lessor Delay. The failure of Lessor to deliver notice of
disapproval within five (5) business days shall be deemed to be Lessor's
approval. If Lessor reasonably disapproves of any portion of such Final Plans,
Lessor shall specify the reason for its disapproval, and the parties shall meet
within two (2) business days of Lessor's delivery of notice of Lessor's
disapproval in order to reach agreement on the Final Plans. The failure of
Lessor to meet with Lessee within two (2) business days shall be deemed to be a
Lessor Delay. The failure of Lessor to meet with Lessee within five (5) business
days shall be deemed to be Lessor's approval. Based upon such agreement, Lessee
shall cause the Space Planner to redesign the Final Plans, incorporating those
reasonable revisions required by Lessor.
2.3 Changes or Additions to Final Plans. Lessee shall have the right
from time to time to submit requests to Lessor for changes or additions to the
Final Plans ("Change Order"), the cost of which shall be calculated by Lessee's
Contractor (as defined below). If Lessor approves any such Change Order, the
Final Plans shall be revised and, to the extent that such Change Order results
in a cost to Lessee in excess of the Improvement Account set forth in
Subparagraph 3.1 below, Lessee shall pay for the cost of such Change Order. Any
Change Order which results in a cost savings to Lessee shall be credited to the
Tenant Improvement Account set forth in Subparagraph 3.1 below.
<PAGE> 40
3. Allowance for Improvements.
3.1 Tenant Improvement Account. Lessor and Lessee agree to pay for
the "Work Costs" of the Improvements (as defined in Paragraph 5) up to the sum
of One Million Three Hundred Thousand Dollars ($1,300,000.00) ("Tenant
Improvement Account"). The Work Costs shall be paid directly to Lessee by the
escrow holder(s) of the Tenant Improvement Account ("Escrow Holder"), upon
Escrow Holder's receipt from Lessee of a certified invoice from the relevant
contractor(s) for the Work Costs attributable to the Tenant Improvement Account
as follows: one-half (1/2) of each invoice amount shall be paid from Lessee's
deposit into the Tenant Improvement Account; and one-half (1/2) of each invoice
amount shall be paid from Lessor's deposit into the Tenant Improvement Account;
provided, however, if, for any reason funds are not available from either
Lessor's or Lessee's portion of the Tenant Improvement Account at the time an
invoice is received, Escrow Holder shall pay one-half (1/2) of the invoice
amount from the Tenant Improvement Account and one-half (1/2) of the invoice
amount shall be paid directly by the party who has not deposited sufficient
funds into the Tenant Improvement Account. Lessee shall be solely responsible
for the cost of any Improvements in excess of the amount of the Tenant
Improvement Account. All items of Improvements, whether or not the cost thereof
is covered by the Tenant Improvement Account, shall become the property of
Lessor upon expiration or earlier termination of the Lease and shall remain on
the Premises at all times during the Term of this Lease, except as otherwise
provided in the Lease.
3.2 Preparation of Work Cost Estimate. After Lessor's approval of
the Final Plans, Lessee shall submit to Lessor a detailed written estimate of
the total Work Costs (as defined in Paragraph 5) covered by the final Plans
("Work Cost Estimate"). Within two (2) business days after delivery of the Work
Cost Estimate, Lessor shall deliver notice of approval or reasonable disapproval
of the Work Cost Estimate. The failure of Lessor to deliver notice of
disapproval within two (2) business days shall be deemed to be a Lessor Delay.
The failure of Lessor to deliver notice of disapproval within five (5) business
days shall be deemed to be Lessor's approval of the Work Cost Estimate. If
Lessor reasonably disapproves the Work Cost Estimate, Lessor shall notify Lessee
of such disapproval within such 5-day period and the parties shall immediately
meet in order to revise the Work Cost Estimate to an amount which is acceptable
to Lessor.
4. Construction of Improvements. Following Lessor's approval of the Final Plans
and the Work Cost Estimate as provided herein, Lessee shall commence and
diligently proceed to have constructed the Improvements in a good and
workmanlike manner, subject only to Lessor Delays.
5. Work Costs. "Work Costs" means: (a) the reasonable cost of space planning,
architectural and engineering (including "value engineering") services,
including, but not limited to reimbursable costs; (b) costs of permits, fees and
taxes (exclusive of real property taxes); (c) testing and inspecting costs; (d)
the actual costs and charges for material and labor, including, without
limitation, reasonable overtime; (e) Lessee's Contractor's fee for profit,
overhead and general conditions (including elevators, parking, utilities,
insurance, construction supervision, trash removal and clean-up) which shall in
no event exceed ten percent (10%) of the hard costs of construction and (f) the
cost of Lessee's signs on the Building and monument signs on the Premises, in
the event Lessee elects to erect such signs.
6. Commencement Date and Substantial Completion.
6.1 Substantial Completion; Punch-List. Lessee shall select a
contractor to construct the Improvements ("Lessee's Contractor"), subject to
Lessor's approval, which shall not be unreasonably withheld. Lessee's Contractor
shall be responsible for the construction of the Improvements substantially in
accordance with the approved Final Plans. The Improvements shall be deemed to be
"Substantially Completed", and "Substantial Completion" shall be deemed to occur
when Lessee's Contractor certifies in writing to Lessor and Lessee that (a)
Lessee has reasonable access to the Premises; (b) Lessee's Contractor has
substantially performed all of the Improvements work required to be performed
under this Work Letter, other than decoration and minor "punch list" items and
adjustments which do not materially interfere with Lessee's access to or use of
the Premises; and (c) Lessee's Contractor or Lessee has obtained a temporary
certificate of occupancy or other required approval from the local governmental
authority permitting occupancy of the Premises. Lessee's Contractor shall
guaranty all work and Improvements for one (1) year from the earlier of the Term
Commencement Date or the commencement of the warranty for those items covered by
manufacturer's or vendor's warranties and, to the extent possible, shall assign
all warranties to Lessee.
6.2 Commencement Date. The Term of the Lease shall commence as
provided in Section 3.1 of the Lease. The Commencement Date shall only be
extended for Lessor Delays (as defined in Paragraph 8).
D-2
<PAGE> 41
If there are Lessor Delays, the Term Commencement Date shall be the Term
Commencement Date set forth in the Lease extended for a period equal to the
period of any delays encountered by Lessee affecting Lessee's construction of
the Improvements because of any Lessor Delays. In no event, however, shall the
Term commence prior to June 1, 1996, unless otherwise agreed to in writing by
Lessor and Lessee.
7. Lessor Delays. For purposes of this Work Letter, "Lessor Delays" shall mean
any delay in substantial completion of the Improvements resulting from any or
all of the following:
(a) Lessor's failure to timely approve or disapprove the Final
Plans as set forth in Subparagraph 2.2 of this Work Letter;
(b) Lessor's failure to timely meet with Lessee to approve the
Final Plans as set forth in Subparagraph 2.2 of this Work Letter;
(c) Lessor's failure to timely approve or disapprove the Work
Cost Estimate as set forth in Subparagraph 3.2 of this Work Letter; and
(d) Delays caused by failure of the Premises and the adjacent
property owned by Lessor, including all parking lots, walkways, entrances,
hallways and other public spaces, elevators, and other devices or pathways for
ingress and exit to the Premises, that might be used by customers, clients,
invitees of Lessee and the general public, to conform to all the requirements of
the American with Disabilities Act and all regulations issued by the U.S.
Attorney General or other authorized agencies under the authorization of the
Americans with Disabilities Act, as of the date of the Lease.
With respect to the Lessor Delays described above, no Lessor Delay
shall be deemed to have occurred unless Lessee has given notice to Lessor by
personal hand delivery, by overnight delivery service such as Federal Express,
or by facsimile (confirmed by mail) of the event, act or occurrence constituting
such a Lessor Delay.
8. Arbitration.
8.1 Dispute Resolution. If any dispute arises in connection with
this Work Letter, such dispute shall be resolved in accordance with this
Article. Such dispute shall be determined by a panel consisting of one
representative of Lessor, one of Lessee's construction representatives (or
another party designated by Lessee), and a third party with extensive
development and construction experience in the construction of commercial office
space in the San Diego County area selected in accordance with Subparagraph 8.3
of this Work Letter ("Construction Panel").
8.2 Notice. All disputes to be determined in accordance with this
Paragraph 8 shall be raised by notice to the other party, which notice shall
state with particularity the nature of the dispute and the demand for relief,
making specific reference by paragraph number and title to the provision of this
Work Letter alleged to give rise to the dispute. Such notice shall also refer to
this Paragraph 8.
8.3 Selection of Third Party/Costs. Lessor and Lessee shall mutually
and promptly select a third party who meets the qualifications set forth in
Subparagraph 8.1 of this Work Letter. In the event a selection is not made
within two (2) days after demand for resolution is made, the third party shall,
upon the request of either party, be appointed by the then-president of the
Association of General Contractors of San Diego County. All proceedings
contemplated by this Paragraph 8 shall take place at the locations for all job-
site meetings, unless the Construction Panel mutually agrees to another
location. The cost for the third party's services shall be paid by the
non-prevailing party, unless the Construction Panel determines otherwise.
8.4 Interpretation and Resolution. In determining any dispute, the
Construction Panel shall apply the pertinent provisions of this Work Letter (and
the Lease, if applicable) without departure therefrom in any respect. The
Construction Panel shall not have the power to add to, modify or change any of
the provisions of this Work Letter, but this provision shall not prevent in any
appropriate case the interpretation, construction and determination by the
Construction Panel of the applicable provisions of this Work Letter to the
extent necessary in applying the same to the matters to be determined by the
Construction Panel. As part of resolving a dispute, the Construction Panel shall
determine the days of delay in completing Improvements which directly result
from the dispute being considered by the Construction Panel, if any. The days of
delay
D-3
<PAGE> 42
shall be designated as either Lessee Delays, Lessor Delays or Unavoidable
Delays or any combination of these three delays, as determined by the
Constructions Panel.
8.5 Continued Performance. During any proceedings pursuant to this
Paragraph 8, Lessor and Lessee shall, to the extent possible, continue to
perform and discharge all of their respective obligations under this Work Letter
and the Lease.
8.6 Binding Resolution. The Construction Panel shall meet within two
(2) days of the third party being selected as a member of the Construction Panel
and the Construction Panel shall thereafter resolve the issue in dispute within
two (2) business days, unless it is mutually agreed among the Construction Panel
members that additional times is necessary to resolve the dispute, but in no
event shall such additional time exceed five (5) business days. Lessor and
Lessee agree that time and strict punctual performance are of the essence with
respect to each provision of this Work Letter and that any and all decisions of
the Construction Panel as to the matter in dispute shall be binding upon both
Lessor and Lessee.
9. Liens. Lessee shall indemnify and hold Lessor harmless from any mechanic's,
materialmen's or other liens filed against all or any part of the Premises, by
reason of or in connection with the construction of the Improvements or other
work contracted for or undertaken by Lessee pursuant to this Work Letter. Lessee
shall at Lessor's request, provide Lessor with enforceable, conditional and
final lien releases (and other evidence reasonably requested by Lessor to
demonstrate protection from liens) from all persons furnishing labor and/or
materials with respect to the Premises. Lessor shall have the right at all
reasonable times to post on the Premises and record any notices of
nonresponsibility which it deems necessary for protection from such liens. If
any such liens are filed, Lessee shall, at its sole cost, promptly cause such
lien to be released of record or bonded so that it no longer affects title to
the Project or the Premises. If Lessee fails to cause such lien to be so
released or bonded within ten (10) days after Lessee's receipt of notice
thereof, such failure shall be deemed an Event of Default by Lessee under the
Lease, and Lessor may, without waiving its rights and remedies based on such
default, and without releasing Lessee from any of its obligations under the
Lease, cause such lien to be released by any means it shall deem proper,
including payment in satisfaction of the claim giving rise to such lien. Lessee
shall pay to Lessor within five (5) days after receipt of invoice from Lessor,
any sum paid by Lessor to remove such liens, together with interest at the rate
set forth in paragraph 19 of the Lease from the date of such payment by Lessor.
[SIGNATURES CONTINUED ON NEXT PAGE]
D-4
<PAGE> 43
[SIGNATURE PAGE TO WORK LETTER AGREEMENT]
<TABLE>
<CAPTION>
LESSOR: LESSEE:
<S> <C>
CAMPSON CORPORATION, a California COMBICHEM, INC., a California corporation
corporation
- ------------------------------ -----------------------------
By:___________________________ By:__________________________
Title:_______________________ Title:_______________________
Date Signed: ______________ Date Signed:_________________
</TABLE>
D-5
<PAGE> 1
EXHIBIT 10.37
STANDARD OFFICE LEASE--FULL SERVICE
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions").
1.1 DATE AND EFFECTIVE DATE. This Lease is dated OCTOBER 29, 1996,
for reference purposes only. The Effective Date shall be the date inserted below
by Lessor and shall be the date this Lease is executed by Lessor. PRIOR TO THE
EFFECTIVE DATE THE TERMS OF THIS LEASE SHALL NOT BE BINDING ON LESSOR AND, UNTIL
SIGNED BY LESSOR, THIS DOCUMENT SHALL BE CONSTRUED ONLY AS AN OFFER BY LESSEE TO
LEASE THE PREMISES. PRIOR TO THE EFFECTIVE DATE, THE TERMS OF THIS LEASE SHALL
NOT BE BINDING ON EITHER PARTY. UNTIL SIGNED BY BOTH PARTIES, NEITHER LESSEE NOR
LESSOR SHALL HAVE ANY OBLIGATION OF ANY KIND TO ANY OF THE PARTIES INVOLVED IN
MAKING THIS OFFER TO LEASE THE PREMISES.
1.2 PARTIES. This Lease is made by and between NEARON ENTERPRISES,
LLC (herein called "Lessor") and COMBICHEM, INC., a California Corporation
(herein called "Lessee").
1.3 PREMISES. Suite "A," consisting of approximately 4,617 square
feet, more or less, as defined in paragraph 2 hereunder and as shown on Exhibit
"A" attached hereto (the "Premises"). The rentable area of the Premises as
stated in the preceding sentence is based on (i) the area of the Premises
measured to the lease line for street elevations (which shall extend to the
property line and/or to the public area boundary line with respect to the
interior frontage, if any, of the Premises) and to the center line of interior
walls, (without deduction for level changes or openings in the floor, or for
stairs and stair openings which connect levels within the Premises), and shall
include structural elements, stairs, elevators, escalators, display areas and
other interior construction or equipment (the "usable area"), plus (ii) amounts
equal to portions of the area of the receiving and trash areas, elevators and
elevator lobbies, vestibules, restrooms, exit and access corridors, parking
areas, loading areas, electrical, mechanical and telephone rooms and other areas
designated by Lessor as necessary to the Building. The Base Rent may have been
calculated based on this square footage, however, the square footage figure used
in this lease is a rough approximation. Lessor and Lessee agree that the Base
Rent is derived from the beneficial use of the Premises as described and not
from any mathematical calculation involving square footage. Neither Lessor nor
Lessee shall be entitled to have the Base Rent adjusted, recalculated, raised or
lowered as a result of any discrepancy between the square footage approximation
contained in this Lease and any measurement that may be determined to be the
actual square footage of the premises.
1.4 BUILDING. Commonly described as being located at 470 SAN ANTONIO
ROAD in the city of PALO ALTO, County of Santa Clara, State of California,
94306.
1.5 USE. Business Office and Research and Development, and any other
activities usual and customary with the day-to-day operations of Lessee's
existing business subject to paragraph 6.
1.6 TERM. TWENTY-FOUR MONTHS, COMMENCING NOVEMBER 1, 1996,
("Commencement Date") and ending October 31, 1998, as defined in paragraph 3. As
a material consideration in this Lease, Lessor grants to Lessee an option to
extend the term of this Lease for two (2) years. To exercise this option Lessee
must give written notice to Lessor of Lessee's intent to exercise this option
one hundred twenty (120) days prior to the end of the term of this Lease and
must not be in default of any of the terms of this Lease. Beginning rental rate
for said option period shall be 95% of the then market rate, with a 5% increase
beginning the thirteenth month of said option.
1.7 BASE RENT. $5,217.00 PER MONTH, payable on or before the first
(1st) day of each month, per paragraph 4.1.
1.8 BASE RENT INCREASE. $5,771.00 EFFECTIVE NOVEMBER 1, 1997.
1.9 RENT PAID UPON EXECUTION. $5,217.00 for the month of November,
1996.
1.10 SECURITY DEPOSIT. $5,217.00.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. The Premises are a portion of a building herein
sometimes referred to as the "Building" identified in paragraph 1.4 of the Basic
Lease Provisions. "Building" shall include adjacent parking areas used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project". Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.3, as
the "Premises", including rights to the Common Areas as hereinafter specified.
2.2 VEHICLE PARKING: Subject to the rules and regulations attached
hereto and as reasonably established by Lessor from time to time, Lessee shall
be entitled to non-exclusive use of available parking at the Office Building
Project, proportionate to Lessee's pro-rata share of total building space, not
less than one (1) space per one thousand (1,000) square feet of Premises,
subject to Lessor's right to utilize or exclude Lessee from such parking areas
pursuant to other provisions of this Lease.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Office Building Project that are provided and designated by the
Lessor from time to time for the general non-exclusive use of Lessor, Lessee and
of other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public rest rooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 COMMON AREAS - RULES AND REGULATIONS. Lessee agrees to abide by
and conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and conform.
Lessor or such other person(s) as Lessor may appoint shall have the exclusive
control and management of the Common Areas and shall have the right, from time
to time to modify, amend and enforce said rules and regulations, provided such
modifications and amendments shall be reasonable and equitably enforced and in
the event of a conflict with this Lease, this Lease shall control. Lessor shall
not be responsible to Lessee for the noncompliance with said rules and
regulations by other Lessees, their agents, employees and invitees of the Office
Building Project.
2.5 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time, so long as Lessee's use and enjoyment of the
Premises is not materially impaired (after reasonable notice to Lessor granting
Lessor a reasonable opportunity to cure):
(a) To make changes in the Building interior and exterior
and Common Areas, including, without limitation changes in the location, size,
shape number and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators escalators, rest rooms, driveways
entrances, parking spaces, parking areas loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Office Building Project,
or any portion thereof;
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Office Building Project
as Lessor may, in the exercise of sound business judgment deem to be
appropriate.
FULL-SERVICE
Page 1 of 10
<PAGE> 2
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.6 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if
for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined, provided, however, that if Lessor shall not have delivered
possession of the Premises on or before November 1, 1996, Lessee may, at
Lessee's option, by notice in writing to Lessor within ten (10) days thereafter
and possession not tendered, cancel this Lease, in which event the parties shall
be discharged from all obligations hereunder; provided, however, that, as to
Lessee's obligations, Lessee first reimburses Lessor for all costs incurred for
and, as to Lessor's obligations, Lessor shall return any money previously
deposited by Lessee (less any offsets due Lessor for any improvements made by
Lessor for Lessee in performance of the terms of this Lease that are not
ordinarily a part of the Building), and provided further that if such written
notice by Lessee is not received by Lessor within said ten (10) day period,
Lessee's right to cancel this Lease hereunder shall terminate and be of no
further force or effect. Lessor shall indemnify Lessee for any and all claims
that may be asserted by the previous Lessee of the Premises.
3.2.1 POSSESSION TENDERED - DEFINED. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) all prior tenants have
vacated the Premises.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of
rent, and the ninety (90) day period following the Commencement Date before
which Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be
deemed extended to the extent of any delays caused by acts or omissions of
Lessee, Lessee's agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease
term is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in
paragraph 4.2, and except as may be otherwise expressly provided in this Lease,
Lessee shall pay to Lessor the Base Rent for the Premises set forth in paragraph
1.7 of the Basic Lease Provisions without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.9 of
the Basic Lease Provisions. Rent for any period during the term hereof which is
for less than one month shall be prorated based upon the actual number of days
of the calendar month involved. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
4.2 RENT INCREASE. N/A
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.10 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all times
bear the same proportion to the then current Base Rent as the initial security
deposit bears to the initial Base Rent set forth in paragraph 1.7 of the Basic
Lease Provisions. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the
purpose set forth in paragraph 1.5 of the Basic Lease Provisions and for no
other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record or
any applicable building code, regulation or ordinance in effect on such Lease
term Commencement Date. In the event it is determined that this warranty has
been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation. Lessor has no current actual knowledge of any violations of the
Americans With Disabilities Act, however, the Office Building Project is not
newly constructed, has no elevators, and could be the subject of regulatory
action in the future.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, fully, diligently, and in a timely manner, comply with all
applicable laws, rules, regulations, ordinances, directives, covenants,
assessments, and restrictions of record, permits, and the requirements of fire
insurance underwriters or rating bureau, relating in any manner to Lessee's use
and occupancy of the Premises, now in effect or which may hereafter come into
effect, whether or not they reflect a change in policy from that now existing,
during the term or any part of the term hereof, relating in any manner to the
Premises and the occupation and use by Lessee of the Premises. Without limiting
the generality of the foregoing and as it relates to the Premises, Lessee agrees
to comply with all laws, orders and regulations relating to the rights of
individuals with disabilities, including without limitation the Americans with
Disabilities Act. Lessee shall conduct its business in a lawful manner and shall
not use or permit the use of the Premises or the Common Areas in any manner that
will tend to create waste or a nuisance or shall tend to disturb other occupants
of the Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, heating, ventilation, mechanical, electrical, and safety systems
in the Premises shall be in good operating condition. In the event that it is
determined that this warranty has been violated, then it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition existing
as of the Lease Commencement Date or the date that Lessee takes possession of
the Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building
Project, including the Premises, interior and exterior
FULL-SERVICE
Page 2 of 10
<PAGE> 3
walls, roof, and common areas, and the equipment whether used exclusively for
the Premises or in common with other premises, in good condition and repair;
provided, however, Lessor shall not be obligated to paint, repair or replace
wall coverings, or to repair or replace any improvements that are not ordinarily
a part of the Building or are above then Building standards. Except as provided
in paragraph 9.5, there shall be no abatement of rent or liability of Lessee as
a result of any injury or interference with Lessee's business with respect to
any improvements, alterations or repairs made by Lessor to the Office Building
Project or any part thereof. Lessee expressly waives the benefits of any statute
now or hereafter in effect that would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Premises in good order, condition and repair. Lessee hereby
waives and releases its rights under California Civil Code Sections 1932(1) and
1942.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in
good condition and repair, Lessee shall be responsible for payment of the cost
thereof as additional rent for that portion of the cost of any maintenance and
repair of the Premises, or any equipment (wherever located) that serves only
Lessee or the Premises, to the extent such cost is attributable to causes beyond
normal wear and tear. Lessee shall be responsible for the cost of painting,
repairing or replacing wall coverings, and to repair or replace any Premises
improvements that re not ordinarily a part of the Building or that are above
then Building standards. Lessor may, at its option, upon reasonable notice,
elect to have Lessee perform any particular such maintenance or repairs the cost
of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, alterations, furnishings and
equipment. Except as otherwise stated in this Lease, Lessee shall lave the air
lines, power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, Utility Installation or repairs
in, on or about the Premises or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, security systems, and telephone and
telecommunication wiring and equipment. At the expiration of the term, Lessor
may require the removal of any or all of said alterations, improvements,
additions or Utility Installations, and the restoration of the Premises and the
Office Building Project to their prior condition, at Lessee's expense. Should
Lessor permit Lessee to make its own alterations, improvements additions or
Utility Installations, Lessee shall use only such contractor as has been
expressly approved by Lessor, and Lessor may require Lessee to provide Lessor,
at Lessee's sole cost and expense, a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such improvements, to insure
Lessor against any liability for mechanic's and material men's liens and to
insure completion of the work. Should Lessee make any alterations, improvements,
additions or Utility Installations without the prior approval of Lessor, or use
a contractor not expressly approved by Lessor, Lessor may, at any time during
the term of this Lease, require that Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanic's or
material men's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non responsibility in or on the Premises
or the Building as provided by law. If Lessee shall in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, paneling, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Commercial
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (CL00011188), or equivalent, in an
amount not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Lessee to
provide Lessor with evidence of required coverage, in the form of a Certificate
of Insurance or other evidence as may be required by Lessor. Compliance with the
above requirement shall not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE--LESSOR. Lessor shall obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Broad Form Property Damage Insurance, plus coverage against such
other risks Lessor deems advisable from time to time, insuring Lessor, but not
Lessee, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than
$1,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire and extended coverage insurance, with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, if applicable, in an amount sufficient to cover not less than 100%
of the full replacement cost, as the same may exist from time to time, of all of
Lessee's personal property, fixtures, equipment and tenant
FULL-SERVICE
Page 3 of 10
<PAGE> 4
improvements.
8.4 PROPERTY INSURANCE--LESSOR. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies of insurance covering
loss or damage to the Office Building Project improvements, but not Lessees
personal property, fixtures, equipment or tenant improvements, in the amount of
the full replacement cost thereof, as the same may exist from time to time,
utilizing Insurance Services Office standard form or equivalent providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, plate glass, and such other
perils as Lessor deems advisable or may be required by a lender having a lien on
the Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
that shall invalidate the insurance policies carried by Lessor. Lessee shall pay
the entirety of any increase in the property insurance premium for the Office
Building Project over what it was immediately prior to the commencement of the
term of this Lease if the increase is specified by Lessor's insurance carrier as
being caused by the nature of Lessee's occupancy or any act or omission of
Lessee.
8.5 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and
its agents, partners and lenders, from and against any and all claims for damage
to the person or property of anyone or any entity arising from the following:
(a) Lessee's use of the Office Building Project, or from the
conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere.
(b) Any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease.
(c) Any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence and in dealing reasonably therewith, including but not limited to the
defense or pursuit of any claim or any action or proceeding involved therein.
In case any action or proceeding be brought against Lessor by reason
of any such matter, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so
indemnified.
Lessee, as a material part of the consideration to Lessor, hereby
assumes all risk of damage to property of Lessee or injury to persons, in, upon
or about the Office Building Project arising from any cause and Lessee hereby
waives all claims in respect thereof against Lessor.
For the purposes of this paragraph 8.5 "claims" means claims,
demands, losses, damages, liability, costs, and expenses, including without
limitation attorney's fees, court costs, expenses and other costs of
investigation and preparation, including attorney's fees and costs and expenses
incurred in connection with any appeal.
The foregoing indemnification obligations shall not apply to any
claims arising from the sole negligence or wilful misconduct of the party
seeking indemnification.
The foregoing indemnification obligations shall survive the
expiration or earlier termination of this Lease to and until the last date
permitted by law for the bringing of any claim with respect to which
indemnification may be claimed under this paragraph.
8.6 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
The exemption of Lessor from liability shall not apply if loss
arises form Lessor's negligence in fulfilling his obligations as stated in 7.1.
8.7 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligation under
this Lease.
8.8 PROOF OF INSURANCE. Lessee shall provide to Lessor proof of
insurance as required herein in a form acceptable to Lessor.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less than fifty percent (50%) of the then Replacement
Cost of the building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall
mean if the Office Building Project Buildings are damaged or destroyed to the
extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction that was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary
to be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Damage or then Lessor shall, as soon as reasonably possible and to the extent
the required materials and labor are readily available through usual commercial
channels, at Lessor's expense, repair such damage (but not Lessee's fixtures,
equipment or tenant improvements originally paid for by Lessee) to its condition
existing at the time of the damage, and this Lease shall continue in full force
and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises Damage
or Premises Building Damage or Premises Building Partial Damage, unless caused
by a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), which damage prevents Lessee from making any
substantial use of the Premises, Lessor may at Lessor's option either (i) repair
such damage or destruction as soon as reasonably possible at Lessor's expense
(to the extent the required materials are readily available through usual
commercial channels) to its condition existing at the time of the damage, but
not Lessee's fixtures equipment or tenant improvements, and this Lease shall
continue in full force and effect, or (ii) given written notice to Lessee within
thirty (30) days
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after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease, in which case this Lease shall terminate as of the
date of the occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT
TOTAL DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5 if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may at Lessor's option either (i) repair such damage or destruction
as soon as reasonably possible at Lessor's expense (to the extent the required
materials are readily available through usual commercial channels) to its
condition existing at the time of the damage, but not Lessee's fixtures
equipment or tenant improvements, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, in which case this Lease shall terminate as of the date of
the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extent or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Damage during the last twelve (12) months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option terminate
and cancel this Lease as of the expiration of said twenty (20) day period by
giving written notice to Lessee of Lessor's election to do so within ten (10)
days after the expiration of said twenty (20) day period, notwithstanding any
term or provision in the grant of option to the contrary
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provision of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided such abatement shall only be to
the extent the operation and profitability of Lessee's business as operated from
the Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises or the Building under the provisions of this Paragraph 9 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence or if Lessor shall not complete the restoration and repair within six
(6) months after such occurrence Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written notice of Lessee's election to do
so at any time prior to the commencement or completion, respectively, of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with
any such restoration and repair, including but not limited to the approval
and/or execution of plans and specifications required.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
therefore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute
that relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease. Any statute or
regulation of the State of California or any other governmental authority or
body, including, without limitation, California Civil Code Sections 1932(2) and
1933(4) with respect to any rights or obligations concerning any damage or
destruction to the Premises or the Office Building Project in the absence of an
express agreement between the parties, and any other statute or regulation
relating to damage or destruction of leased premises, now or hereafter in
effect, shall have no application to this Lease or any damage or destruction to
all or any part of the Premises or any other portion of the Office Building
Project.
10. UTILITIES.
10.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
10.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water,
gas, heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
10.3 HOURS OF SERVICE. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Heating, ventilation and air conditioning service
will be available to Lessee at other times through the use of a timer system.
Utilities and services required at other times shall be subject to advance
request and reimbursement by Lessee to Lessor of the cost thereof.
10.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Charges for additional use shall be
billed quarterly according to the following method: the monthly utility charge
will be compared to the charge for the same month of the prior year; any
increase will be paid by Lessee in an amount not to exceed Six Hundred and Fifty
Dollars ($650.00) per month. Lessor may, in its sole discretion, install at
Lessee's expense supplemental equipment and/or separate metering applicable to
Lessee's excess usage or loading.
10.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor
shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
11. ASSIGNMENT AND SUBLETTING. LESSOR'S CONSENT REQUIRED. Lessee shall not
voluntarily or by operation of law assign, transfer, mortgage, sublet, or
otherwise transfer or encumber all or any part of Lessee's interest in the Lease
or in the Premises, without Lessor's prior written consent.
12. DEFAULT; REMEDIES.
12.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
Vacation of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid:
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 11 (assignment or
subletting), 12.1(a) (vacation or abandonment), 12.1(e) (insolvency), 12(f)
(false statement), 14(a) (estoppel certificate), 27.2 (subordination), 30
(auctions), or 38.I (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three (3) days after written notice
thereof from Lessor to
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Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit
pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or
Quit shall also constitute the notice required by this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (b) and (c), above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becoming a "debtor"
as defined in 11 U.S.C. ss.101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee s assets located at the Premises or of Lessee's
interest in this Lease where possession is not restored to Lessee within thirty
(30) days, or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 12.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false.
12.2 REMEDIES. In the event of any material default or breach of
this Lease by Lessee, Lessor may at any time thereafter, with or without notice
or demand and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expense of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth of the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
(d) In addition to the remedies set forth in paragraph 12.2(a)
through (c) and in addition to all other rights and remedies available to Lessor
at law or in equity, Lessor shall have the following rights and remedies:
(i) the rights and remedies provided by California Civil
Code Section 1951.2, including, but not limited to, the right to terminate
Lessee's right to possession of the Premises and to recover (i) "the worth at
the time of award" (as defined in Section 12.2(d)(vi) below) of the unpaid Base
Rent which shall have been earned at the time of termination; plus (ii) the
worth at the time of award of the amount by which the unpaid Base Rent which
would have been earned after termination until the time of award shall exceed
the amount of loss of such Base Rent that Lessee proves could have been
reasonably avoided; plus (iii) the worth at the time of award of the amount by
which the unpaid Base Rent for the balance of the Term after the time of award
shall exceed the amount of loss of such Base Rent that Lessee proves could be
reasonably avoided; plus (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which would be likely to result therefrom
(including without limitation attorneys' and accountants' fees, costs of
alterations of the Premises, interest costs and brokers' fees incurred upon any
reletting of the Premises);
(ii) the rights and remedies described in California Civil
Code Section 1951.4 (Lessor may continue the Lease in effect after Lessee's
breach and abandonment and recover Base Rent and Operating Expenses as they
become due, since Lessee, pursuant to the provisions of paragraph 11 may sublet
or assign, subject only to reasonable limitations). Acts of maintenance or
preservation, efforts to relet the Premises or the appointment of a receiver
upon Lessor's initiative to protect its interest under this Lease shall not of
themselves constitute a termination of Lessee's right to possession;
(iii) the right to enter the Premises and remove therefrom
all persons and property, to store such property in a public warehouse or
elsewhere at the cost of and for the account of Lessee, and to sell such
property and apply the proceeds therefrom pursuant to applicable California law
and subject to the prior rights of third party owners with respect to consigned
property or secured creditors having a claim prior in right. In such event
lessor may from time to time sublet the Premises or any part thereof for such
term or terms (which may extend beyond the Term) and at such rent and such other
terms as Lessor in its sole discretion may deem advisable, with the right to
make alterations and repairs to the Premises. Upon each such subletting, rents
received from such subletting shall be applied by Lessor, first, to payment of
any indebtedness other than Base Rent due hereunder from Lessee to Lessor;
second, to the payment of any costs of such subletting (including without
limitation attorneys' and accountants' fees, costs of alterations of the
Premises, interest costs, and brokers' fees) and of any such alterations and
repairs; third, to payment of Base Rent due and unpaid hereunder; and the
residue, if any, shall be held by Lessor and applied in payment of future Base
Rent as it becomes due hereunder. If any rental or other charges due under such
sublease shall not be promptly paid to Lessor by the sublessee(s), or if such
rentals received from such subletting during any month are less than Base Rent
to be paid during that month by Lessee hereunder, Lessee shall pay any such
deficiency to Lessor, as well as any unpaid indebtedness other than Base Rent
due hereunder from Lessee to Lessor and the costs of such subletting (including
without limitation attorneys' and accountants' fees, costs of alterations of the
Premises, interest costs, and brokers' fees), and any other amounts due Lessor
under this Section 12.2. Such deficiency shall be calculated and paid monthly.
No taking possession of the Premises by Lessor shall be construed as an election
on its part to terminate this Lease unless a written notice of such intention is
given to Lessee. Lessor's subletting the Premises without termination shall not
constitute a waiver of Lessor's right to elect to terminate this Lease for such
previous breach;
(iv) The right to have a receiver appointed for Lessee, upon
application by Lessor, to take possession of the Premises, to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Lessor pursuant to paragraph 12.2(d)(iii); and
(v) the right to specific performance of any or all of
Lessee's obligations hereunder, and to damages for delay in or failure of such
performance.
(e) For purposes of paragraph 12.2(d) the "worth at the time of
award" of the amounts referred to in subparagraphs (i) and (ii) shall be
computed with interest at the lesser of the maximum rate then allowed by law or
a rate which is five percent (5%) per annum plus the rate from time to time,
established by the Federal Reserve Bank of San Francisco on advances to member
banks under Sections 13 and 13(a) of the Federal Reserve Act as now in effect or
hereafter from time to time amended; the "worth at the time of award" of the
amount referred to in subparagraph (iii) shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%).
12.2.1 REMEDIES CUMULATIVE. The exercise of any remedy provided by
law or the provisions of this Lease shall not exclude any other remedies unless
they are expressly excluded by this Lease. Any notice of default given or
required to be given by Lessor to Lessee hereunder may be combined with, serve
as or include any statutory notice required in connection with the exercise by
Lessor of any of its remedies. Lessee hereby waives any right of redemption or
relief from forfeiture following termination of, or exercise of
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any remedy by Lessor with respect to, this Lease.
12.2.2 RECOVERY AGAINST LESSOR. Lessee shall look solely to
Lessor's interest in the Office Building Project for the recovery of any
judgment against Lessor. Lessor, or if Lessor is a partnership, its partners
whether general or limited, or if Lessor is a corporation, its directors,
officers and shareholders, shall never be personally liable for any such
judgment.
12.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30 day period and thereafter
diligently pursues the same to completion.
12.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, or other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges that may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Office Building
Project. Accordingly, if any installment of Base Rent, Operating Expense
Increase, or any other sum due from Lessee shall not be received by Lessor or
Lessor's designee within five (5) days after such amount shall be due, then,
without any requirement for notice to Lessee, Lessee shall pay to Lessor a late
charge equal to 6% of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee and shall be paid as Additional Rent.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
12.5 RETURNED CHECKS. If any check for payment by Lessee to Lessor
of Base Rent or other sums due hereunder shall be returned to Lessor by Lessee's
bank for any reason, all payments made by Lessee, for the period of six (6)
months following, shall be made with certified funds or upon demonstration of
good credit at Lessor's sole discretion. A returned check charge in the amount
of $20.00 in addition to any sums due hereunder including late charges.
13. CONDEMNATION. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation or
profitability of Lessee's business conducted from the Premises. Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent and Lessee's
Share of Operating Expense Increase shall be reduced in the proportion that the
floor area of the Premises taken bears to the total floor area of the Premises.
Common Areas taken shall be excluded from the Common Areas usable by Lessee and
no reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease as
of the taking of possession by the condemning authority by giving written notice
to Lessee of such election within thirty (30) days after receipt of notice of a
taking by condemnation of any part of the Premises or the Office Building
Project. Any award for the taking of all or any part of the Premises or the
Office Building Project under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
14. ESTOPPEL CERTIFICATE.
14.1 Each party (as "responding party") shall at any time upon not
less than ten (10) days prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
14.2 At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
15. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, in the event of any
transfer of such title or interest, Lessor herein named (and in case of any
subsequent transfers then the grantor) shall be relieved from and after the date
of such transfer of all liability as respects Lessor's obligations thereafter to
be performed, provided that any funds in the hands of Lessor or the then grantor
at the time of such transfer, in which Lessee has an interest, shall be
delivered to the grantee. The obligations contained in this Lease to be
performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns, only during their respective periods of ownership.
16. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
17. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
18. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
19. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Late Charges, Lessee's Share
of Operating Expense Increase and any other expenses payable by Lessee hereunder
shall be deemed to be rent.
20. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties which respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that Lessor or any employee or agents
of any of said persons has made any oral or written warranties or
representations to Lessee relative to the condition or use by Lessee of the
Premises or the Office Building Project and Lessee acknowledges that Lessee
assumes all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease.
21. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the
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<PAGE> 8
address required, or forty-eight hours following deposit in the mail, postage
prepaid, whichever first occurs. Either party may be notice to the other specify
a different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee. Lessee acknowledges that service of any notice on one Lessee constitutes
service on all Parties herein called Lessee.
22. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof.
23. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be one hundred twenty percent (120%) of the rent payable immediately
preceding the termination date of this Lease, and all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
24. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
25. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
26. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
11, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
27. SUBORDINATION.
27.1 This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted hereby prior to the lien
of its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options are
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.
27.2 Lessee agrees to execute any documents required to effectuate
an attornment, a subordination, or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as the
case may be. Lessee's failure to execute such documents within ten (10) days
after written demand shall constitute a material default by Lessee hereunder
without further notice to Lessee or, at Lessor's option Lessor shall execute
such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does
hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney in
fact and in Lessee's name, place and stead, to execute such documents in
accordance with this paragraph 27.2.
28. ATTORNEYS' FEES.
28.1 If either party bring an action to enforce the terms hereof or
declare rights hereunder, the prevailing party in such any action, trial or
appeal thereon, shall be entitled to his reasonable attorneys' fees to be paid
by the losing party as fixed by the court in the same or a separate suit, and
whether or not such action is pursued to decision or judgment.
28.2 The attorneys' fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred in good faith.
28.3 Lessor shall be entitled to reasonable attorneys' fees and all
other costs and expenses incurred in the preparation and service of notice of
default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
29. LESSOR'S ACCESS.
29.1 Lessor, Lessor's agents, employees, contractors, and designated
representatives shall have the right to enter the Premises at reasonable times,
with not less than twelve hours advance notice, except in the event of an
emergency, for the purpose of inspecting the same, performing any services
required of Lessor, showing the same to prospective purchasers, lenders or
lessees, taking such safety measures, erecting such scaffolding or other
necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
29.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for the
same.
29.3 Lessor shall have the right to retain keys to the Premises and
to unlock all doors in or upon the Premises other than to files, vaults and
safes, and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forcible or unlawful
entry or detainer of the Premises or an eviction. Lessee waives any charges for
damages or injuries or interference with Lessee's property or business in
connection therewith.
30. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
31. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
32. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
33. CONSENTS. Except for paragraphs 30 (auctions) and 31 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
34. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
35. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
36. OPTIONS.
36.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of first refusal to the lease the Premises or
the right of first offer to lease the Premises or the right of first refusal to
lease other space within the
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<PAGE> 9
Office Building Project or other property of Lessor or the right of first offer
to lease other space within the Office Building Project or other property of
Lessor; (3) the right or option to purchase the Premises or the Office Building
Project, or the right of first refusal to purchase the Premises or the Office
Building Project or the right of first offer to purchase the Premises or the
Office Building Project, or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
36.2 Leases shall have no options whatsoever unless expressly
granted in paragraph 1.6 of this Lease.
36.3 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease
is personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee. The Options, if any, herein granted to
Lessee are not assignable separate and apart from this Lease, nor may any Option
be separated from this Lease in any manner, either by reservation or otherwise.
36.4 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
36.5 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 12.1(c) or 12.1(d) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 12.1(c), or paragraph
12.1(d), whether or not the defaults are cured during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 12.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 36.5(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 12.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion or (iii)
Lessor gives to Lessee three or more notices of default under paragraph 12.1(c),
or paragraph 12.1(d) whether or not the defaults are cured, or (iv) if Lessee
has committed any non-curable breach including without limitation those
described in paragraph 12.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
37. SECURITY MEASURES-LESSOR'S RESERVATIONS.
37.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents, contractors, employees and invitees
from acts of third parties. Nothing herein contained shall prevent Lessor, at
Lessor's sole option, from providing security protection for the Office Building
Project or any part thereof, in which event the cost thereof shall be paid for
by Lessee, proportionate to lessee's share of the total square footage of the
Building.
37.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90 days
prior written notice;
(b) To, at Lessee's expense, provide and install Building
standard graphics on the door of the premises and such portions of the Common
Areas as Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights expressly
given herein;
(d) To place such signs, notices or displays as Lessor
reasonably deems necessary or advisable upon the roof, exterior of the buildings
or the Office Building Project or on post signs in the Common Areas;
37.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the
Building or the Office Building Project or their name(s) in connection with
Lessee's business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
38. EASEMENTS.
38.1 Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably or materially interfere with the use of the Premises by Lessee.
Lessee shall sign any of the aforementioned documents upon request of Lessor and
failure to do so shall constitute a material default of this Lease by Lessee
without the need for further notice to Lessee.
38.2 The obstruction of Lessee's view, air, or light by any
structure erected in the vicinity of the Building, whether by Lessor or third
parties, shall in no way affect this Lease or impose any liability upon Lessor.
39. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof said party shall be entitled to recover such sum or
so much thereof as it was not legally required to pay under the provisions of
this Lease.
40. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
41. CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
42. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
43. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
44. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
45. ACCEPTANCE. Upon occupancy of the Premises by Lessee, Lessee formally
accepts the Premises "as is". Unless and to the extent specified by both parties
in writing, Lessor has no obligation to perform any work or improvement to the
Premises.
46. ATTACHMENTS. Attached hereto are the following documents that constitute a
part of this Lease:
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<PAGE> 10
EXHIBIT A (Rules and Regulations for Standard Office Lease)
EXHIBIT B (Tenant Improvements)
EXHIBIT C (Floor Plan of Office Building Project)
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE REASONABLE AND EFFECTUATE THE
INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR APPROVAL. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE LESSOR OR ITS AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE.
<TABLE>
<CAPTION>
LESSOR NEARON ENTERPRISES, LLC LESSEE COMBICHEM, INC.
<S> <C>
By Nearon Enterprises, a California Corp. By /s/ illegible
---------------------------------------- ----------------------------------------
Its Designated Manager Its /s/ President and CEO
--------------------------------------- -------------------------------------
By /s/ David S. Christensen By
---------------------------------------- ------------------------------------
DAVID S. CHRISTENSEN
Its EVP and COO Its
--------------------------------------- -------------------------------------
Executed at Danville, California Executed at San Diego, CA
------------------------------- -----------------------------
on (date) 12-2-96 on (date) 11-5-96
--------------------------------- -------------------------------
Address 30 Oak Court Address 9050 Camino Santa Fe
--------------------------------- --------------------------------
Danville, CA 94526 San Diego, CA 92121
--------------------------------- --------------------------------
</TABLE>
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EXHIBIT A
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or interfere
with other lessees or persons having business within the Office Building
Project.
4. Lessee shall not keep animals or birds within the Office Building Project,
and shall not bring bicycles, motorcycles or other vehicles into areas not
designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit anything in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out of
the building only with the Lessor's knowledge and consent, and subject to such
reasonable limitations, techniques and timing, as may be designated by Lessor.
Lessee shall be responsible for any damage to the Office Building Project
arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work to be
performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 5:00 p.m. and
8:00 a.m. It is Lessee's responsibility to keep the Building locked at all times
other than ordinary business hours. If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it may have
opened for entry or exit.
13. Lessee shall be provided with two sets of keys upon occupancy. Lessee shall
return all keys at the termination of its tenancy and shall be responsible for
the cost of replacing any lost keys.
14. No window coverings, shades or awnings shall be installed or used by Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes anywhere inside the Building.
17. Lessee shall not use any method of heating or air conditioning other than as
provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon the
Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or food
preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor any applicable governmental agency.
21. Lessor reserves the right to waive any one of the these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking Areas shall be used only for parking by vehicles no longer than full
size, passenger automobiles herein called "Permitted Size Vehicles". Vehicles
other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles".
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Lessor reserves the right to relocate all or a part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent off site
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
4. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
5. Unless otherwise instructed, every person using the parking area is required
to park and lock his own vehicle. Lessor will not be responsible for any damage
to vehicles, injury to persons or loss of property, all of which risks are
assumed by the party using the parking area.
6. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Area is prohibited.
7. Lessee shall be responsible for seeing that all of its employees, agents and
invitees comply with the applicable parking rules, regulations laws and
agreements.
8. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and nondiscriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
9. Such parking used as herein provided is intended merely as a license only and
no bailment is intended or shall be created hereby.
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EXHIBIT B
TENANT IMPROVEMENTS
The Premises shall be constructed in accordance with Lessor's Standard
Improvements, as follows:
1. PARTITIONS -- As existing.
2. WALL SURFACES -- Painted Kelly-Moore "Frost".
3. WINDOW COVERINGS -- As existing.
4. FLOORING -- Shampoo carpeting.
5. DOORS -- As existing.
6. ELECTRICAL AND TELEPHONE OUTLETS -- As existing.
7. CEILINGS -- As existing.
8. LIGHTING -- Repair and/or replace as necessary.
9. HEATING AND AIR CONDITIONING DUCTS -- As existing.
10. PLUMBING -- As existing.
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STANDARD OFFICE LEASE
FLOOR PLAN
[DIAGRAM]
EXHIBIT C
<PAGE> 1
EXHIBIT 10.38
LEASE AGREEMENT
BY AND BETWEEN
HARBOR INVESTMENT PARTNERS,
A CALIFORNIA GENERAL PARTNERSHIP
AS LANDLORD
AND
COMBICHEM, INC.,
a California corporation
AS TENANT
DATED OCTOBER 6, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Basic Lease Information..............................................................iv
1. Demise.............................................................................1
2. Premises...........................................................................1
3. Term...............................................................................2
4. Rent...............................................................................2
5. Utilities And Services.............................................................9
6. Late Charge.......................................................................10
7. Letter of Credit..................................................................11
8. Possession........................................................................13
9. Use Of Premises...................................................................13
10. Acceptance Of Premises...........................................................15
11. Surrender........................................................................16
12. Alterations And Additions........................................................17
13. Maintenance and Repairs Of Premises..............................................19
14. Landlord's Insurance.............................................................20
15. Tenant's Insurance...............................................................20
16. Indemnification..................................................................22
17. Subrogation......................................................................23
18. Signs............................................................................23
19. Free From Liens..................................................................23
20. Entry By Landlord................................................................24
21. Destruction And Damage...........................................................24
22. Condemnation.....................................................................27
23. Assignment And Subletting........................................................28
24. Tenant's Default.................................................................31
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
25. Landlord's Remedies..............................................................33
26. Landlord's Right to Perform Tenant's Obligations.................................36
27. Attorney's Fees..................................................................37
28. Taxes............................................................................37
29. Effect Of Conveyance.............................................................37
30. Tenant's Estoppel Certificate....................................................38
31. Subordination....................................................................38
32. Environmental Covenants..........................................................39
33. Notices..........................................................................42
34. Waiver...........................................................................43
35. Holding Over.....................................................................43
36. Successors And Assigns...........................................................44
37. Time.............................................................................44
38. Brokers..........................................................................44
39. Limitation Of Liability..........................................................44
40. Financial Statements.............................................................44
41. Rules And Regulations............................................................45
42. Mortgagee Protection.............................................................45
43. Entire Agreement.................................................................46
44. Substituted Premises.............................................................46
45. Interest.........................................................................46
46. Construction.....................................................................46
47. Representations And Warranties Of Tenant.........................................47
48. Security.........................................................................47
49. Jury Trial Waiver................................................................48
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
A Diagram of the Premises
B Commencement and Expiration Date
Memorandum
C Rules and Regulations
D Hazardous Materials Disclosure Certificate
</TABLE>
iii
<PAGE> 5
LEASE AGREEMENT
BASIC LEASE INFORMATION
<TABLE>
<S> <C>
Lease Date: October 6, 1997
Landlord: HARBOR INVESTMENT PARTNERS,
a California general partnership
Landlord's Address: c/o Allegis Realty Investors LLC
455 Market Street, Suite 1540
San Francisco, California 94105
All notices sent to Landlord under this Lease
shall be sent to the above address, with copies
to:
Insignia Commercial Group, Inc.
160 West Santa Clara Street, Suite 1350
San Jose, California 95113
Tenant: CombiChem, Inc.,
a California corporation
Tenant's Contact Person: Karin Eastham
Chief Financial Officer/
Vice President, Finance and Administration
Tenant's Address and 9050 Camino Santa Fe
Telephone Number: San Diego, California 92121
(619) 530-0484
Premises Square Footage: Approximately Five Thousand Nine Hundred Eighty-Five (5,985)
rentable square feet
Premises Address: 1804 Embarcadero Road
Suite 201
Palo Alto, California 94303
Project: The Harbor Business Park, 1800-1858 Embarcadero
Road and 2445-2465 Faber Place, Palo Alto,
California, consisting of approximately two
hundred fifty-nine thousand, two hundred
thirty-seven (259,237) rentable square feet,
together with the land on which the Project is
situated and all Common Areas
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
Building (if not the same 1804 Embarcadero Road, Palo Alto, California 94303, consisting
as the Project): of approximately forty thousand (40,000)
rentable square feet
Tenant's Proportionate 2.31%
Share of Project:
Tenant's Proportionate 14.96%
Share of Building:
Length of Term: Sixty (60) months
Estimated Commencement Date: November 1, 1997
Estimated Expiration Date: October 31, 2002
</TABLE>
Monthly Base Rent:
<TABLE>
<CAPTION>
Monthly Base Monthly Base
Months Sq. Ft. Rate Rent
------ ------- ---- ----
<S> <C> <C> <C>
1-12 5,985 x $ 3.65 = $ 21,845.25
13-60 Monthly Base Rent to be increased
in accordance with the Consumer
Price Index Price (see Paragraph
4(a) of the Lease)
</TABLE>
<TABLE>
<S> <C>
Prepaid Rent: Twenty-One Thousand Eight Hundred Forty-Five and 25/100 Dollars
($21,845.25)
Month to which Prepaid Base First (1st) full month of the Term
Rent will be Applied:
Base Year: 1997
Letter of Credit: Two Hundred Sixty-Two Thousand One Hundred Forty-Three Dollars
($262,143)
Permitted Use: General office, research and development of computer software
and software engineering and design
Unreserved Parking Spaces: Nineteen (19) nonexclusive and undesignated parking spaces
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
Broker(s): Cornish & Carey Commercial and BT Commercial (Landlord's Broker)
CPS (Tenant's Broker)
</TABLE>
vi
<PAGE> 8
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into by and between Landlord and
Tenant on the Lease Date. The defined terms used in this Lease which are defined
in the Basic Lease Information attached to this Lease Agreement ("BASIC LEASE
INFORMATION") shall have the meaning and definition given them in the Basic
Lease Information. The Basic Lease Information, the exhibits, the addendum or
addenda described in the Basic Lease Information, and this Lease Agreement are
and shall be construed as a single instrument and are referred to herein as the
"LEASE".
1. DEMISE
In consideration for the rents and all other charges and payments payable
by Tenant, and for the agreements, terms and conditions to be performed by
Tenant in this Lease, LANDLORD DOES HEREBY LEASE TO TENANT, AND TENANT DOES
HEREBY HIRE AND TAKE FROM LANDLORD, the Premises described below (the
"PREMISES"), upon the agreements, terms and conditions of this Lease for the
Term hereinafter stated.
2. PREMISES
The Premises demised by this Lease is located in that certain building (the
"BUILDING") specified in the Basic Lease Information, which Building is located
in that certain real estate development (the "PROJECT") specified in the Basic
Lease Information. The Premises and the Project have the address and contain the
square footage specified in the Basic Lease Information. The location and
dimensions of the Premises are depicted on EXHIBIT A, which is attached hereto
and incorporated herein by this reference. Tenant shall have the non-exclusive
right (in common with the other tenants, Landlord and any other person granted
use by Landlord) to use the Common Areas (as hereinafter defined), except that,
with respect to parking, Tenant shall have only an irrevocable license (subject
to the terms and conditions of this Lease) for the entire Term to use the number
of non-exclusive and undesignated parking spaces set forth in the Basic Lease
Information in the Project's parking areas (the "PARKING AREAS") at no
additional cost to Tenant; provided, however, that Landlord shall not be
required to enforce Tenant's right to use such parking spaces; and, provided
further, that the number of parking spaces allocated to Tenant hereunder shall
be reduced on a proportionate basis in the event any of the parking spaces in
the Parking Areas are taken or otherwise eliminated as a result of any
Condemnation (as hereinafter defined) or casualty event affecting such Parking
Areas. No easement for light or air is incorporated in the Premises. For
purposes of this Lease, the term "COMMON AREAS" shall mean all areas and
facilities outside the Premises and within the exterior boundary line of the
Project that are provided and designated by Landlord for the non-exclusive use
of
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<PAGE> 9
Landlord, Tenant and other tenants of the Project and their respective
employees, guests and invitees.
Landlord has the right, in its sole discretion, from time to time, to: (a)
make changes to the Common Areas, including, without limitation, changes in the
location, size, shape and number of driveways, entrances, parking spaces,
parking areas, ingress, egress, direction of driveways, entrances, corridors and
walkways; (b) close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available; (c) add
additional buildings and improvements to the Common Areas or remove existing
buildings or improvements therefrom; (d) use the Common Areas while engaged in
making additional improvements, repairs or alterations to the Project or any
portion thereof; and (e) do and perform any other acts or make any other changes
in, to or with respect to the Common Areas and the Project as Landlord may, in
its sole discretion, deem to be appropriate; provided, however, that none of the
foregoing actions by Landlord shall materially and substantially interfere with
Tenant's business in the Premises, except to the extent that such actions are
undertaken by Landlord in emergency situations or in connection with the
performance of Landlord's obligations under this Lease.
3. TERM
The term of this Lease (the "TERM") shall be for the period of months
specified in the Basic Lease Information, commencing on the date Landlord
delivers possession of the Premises to Tenant (the "COMMENCEMENT DATE"), but not
earlier than the Estimated Commencement Date specified in the Basic Lease
Information. In the event the actual Commencement Date is a date other than the
Estimated Commencement Date specified in the Basic Lease Information, then
Landlord and Tenant shall promptly execute a Commencement and Expiration Date
Memorandum in the form attached hereto as EXHIBIT B, wherein the parties shall
specify the Commencement Date and the date on which the Term expires (the
"EXPIRATION DATE").
4. RENT
(a) BASE RENT. Tenant shall pay to Landlord, in advance on the first day of
each month, without further notice or demand and without offset or deduction,
the monthly installments of rent specified in the Basic Lease Information (the
"BASE RENT"). If the Term begins on a day other than the first day of a month,
the Tenant shall pay, in advance, the prorated Base Rent for such partial month
and the Prepaid Base Rent shall be applied to the Base Rent payable on the first
day of the following month. If the Term ends on a day other than the last day of
a month, Base Rent shall be prorated based upon the actual number of days in
such month.
The Base Rent under this Paragraph 4(a) shall be adjusted, as stated below,
on November 1 of each year during the Term commencing on November 1,
2
<PAGE> 10
1998 to reflect percentage increases in the cost of living. The Consumer Price
Index (U.S. Department of Labor Consumer Price Index (all items) for Urban Wage
Earners and Clerical Workers, San Francisco Bay Area (1982-1984=100),
hereinafter referred to as the "INDEX") published for the month immediately
preceding each such adjustment date (each, an "ADJUSTMENT INDEX") and the Index
published for the month immediately preceding the Commencement Date of this
Lease ("BASE INDEX") shall be compared and the percentage difference between the
Adjustment Index and the Base Index shall be determined. The initial Base Rent
specified in the Basic Lease Information shall be increased by adding to said
initial Base Rent the percentage amount of said initial Base Rent equal to the
percentage difference between the Base Index and the applicable Adjustment
Index; provided, however, in no event shall the initial Base Rent hereunder be
increased by less than five percent (5%) or more than eight percent (8%) for any
one year. When the adjusted Base Rent is determined after each adjustment date,
Landlord shall give Tenant written notice indicating the amount thereof and the
method of computation. If the Consumer Price Index is changed or discontinued,
Landlord shall substitute an official index published by the Bureau of Labor
Statistics or its successor or similar governmental agency as may then be in
existence and shall be most nearly equivalent thereto.
Upon execution of this Lease, Tenant shall pay to Landlord the Prepaid Base
Rent specified in the Basic Lease Information to be applied toward Base Rent for
the month of the Term specified in the Basic Lease Information.
(b) ADDITIONAL RENT. During the term, in addition to the Base Rent, Tenant
shall pay to Landlord as additional rent (the "ADDITIONAL RENT"), in accordance
with this Paragraph 4, Tenant's Proportionate Share(s) of the total dollar
increase, if any, in Expenses (as defined below) each calendar year over
Expenses in the Base Year (as specified in the Basic Lease Information).
Following the Base Year, any Expenses attributable to a period which falls
outside the Term shall be prorated between Tenant and Landlord so that Tenant
shall pay only that portion thereof which is attributable to the period within
the Term. As used in this Lease, "EXPENSES" means all costs and expenses paid or
incurred by Landlord in connection with the ownership, operation, maintenance,
management and repair of the Premises, the Building and/or the Project or any
part thereof, including, without limitation, all the following items:
(1) Taxes and Assessments. All real estate taxes and assessments,
which shall include any form of tax, assessment, fee, license fee, business
license fee, levy, penalty (if a result of Tenant's delinquency), or tax (other
than net income, estate, succession, inheritance, transfer or franchise taxes),
imposed by any authority having the direct or indirect power to tax, or by any
city, county, state or federal government or any improvement or other district
or division thereof, whether such tax is (i) determined by the area of the
Premises, the Building and/or the Project or any part thereof, or the Rent and
other sums payable hereunder by Tenant or by other tenants, including, but not
limited to, any gross income or
3
<PAGE> 11
excise tax levied by any of the foregoing authorities with respect to receipt of
Rent and/or other sums due under this Lease; (ii) upon any legal or equitable
interest of Landlord in the Premises, the Building and/or the Project or any
part thereof; (iii) upon this transaction or any document to which Tenant is a
party creating or transferring any interest in the Premises, the Building and/or
the Project; (iv) levied or assessed in lieu of, in substitution for, or in
addition to, existing or additional taxes against the Premises, the Building
and/or the Project, whether or not now customary or within the contemplation of
the parties; or (v) surcharged against the parking area. Tenant and Landlord
acknowledge that Proposition 13 was adopted by the voters of the State of
California in the June, 1978 election and that assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such purposes as fire
protection, street, sidewalk, road, utility construction and maintenance, refuse
removal and for other governmental services which may formerly have been
provided without charge to property owners or occupants. It is the intention of
the parties that all new and increased assessments, taxes, fees, levies and
charges due to any cause whatsoever are to be included within the definition of
real property taxes for purposes of this Lease. "TAXES AND ASSESSMENTS" shall
also include legal and consultants' fees, costs and disbursements incurred in
connection with proceedings to contest, determine or reduce taxes, Landlord
specifically reserving the right, but not the obligation, to contest by
appropriate legal proceedings the amount or validity of any taxes.
Notwithstanding the foregoing, "TAXES AND ASSESSMENTS" shall not include (i) any
special assessment levied by any governmental authority to pay the costs of the
removal of any Hazardous Materials disposed of by Landlord on the Property, (ii)
any item to the extent otherwise included within another category of "Expenses,"
(iii) costs of building permits or development fees (including fees for transit,
housing, schools, open space, child care, arts programs, traffic mitigation
measures, environmental impact reports, traffic studies and transportation
system management plans) payable to public authorities in connection with any
tenant improvement work performed by Landlord for another tenant of the Project,
(iv) reserves for taxes and assessments payable in future real property tax
fiscal years, and (v) any documentary transfer taxes arising out of a voluntary
transfer or sale by Landlord of all or a portion of the Project. In the case of
any assessment which may be evidenced by improvement or other bonds and which
may be paid in annual or other periodic installments, Landlord shall elect to
cause such assessment to be paid in installments over the maximum period
permitted by law. If a reduction in Taxes and Assessments is obtained for any
year of the Term during which Tenant paid Tenant's Proportionate Share of such
Taxes and Assessments, then Expenses for such year shall be retroactively
adjusted and Landlord shall provide Tenant with a credit against Tenant's next
due obligations for Additional Rent or, if none, refund such amount to Tenant
within thirty (30) days based on such adjustment, provided that if Tenant has
vacated the Premises, Landlord shall provide such refund only if Tenant has
furnished Landlord with a current forwarding address.
(2) Insurance. All insurance premiums for the Building and/or the
Project or any part thereof, including premiums for "all risk" fire and extended
4
<PAGE> 12
coverage insurance, commercial general liability insurance, rent loss or
abatement insurance, earthquake insurance, flood or surface water coverage, and
other insurance as Landlord deems necessary in its sole discretion, and any
deductibles paid under policies of any such insurance.
(3) Utilities. The cost of all electricity, water, gas, sewers, oil
and other utilities (collectively, "UTILITIES"), including any surcharges
imposed, serving the Premises, the Building and the Project that are not
separately metered to Tenant or any other tenant, any assessments or charges for
Utilities or similar purposes included within any tax bill for the Building or
the Project, including without limitation, entitlement fees, allocation unit
fees, and/or any similar fees or charges and any penalties (if a result of
Tenant's delinquency) related thereto, and any amounts, taxes, charges,
surcharges, assessments or impositions levied, assessed or imposed upon the
Premises, the Building or the Project or any part thereof, or upon Tenant's use
and occupancy thereof, as a result of any rationing of Utility services or
restriction on Utility use affecting the Premises, the Building and/or the
Project, as contemplated in Paragraph 5 below (collectively, "UTILITY
EXPENSES").
(4) Common Area Expenses. All costs to operate, maintain, repair,
replace, supervise, insure and administer the Common Areas, including supplies,
materials, labor and equipment used in or related to the operation and
maintenance of the Common Areas, including parking areas (including, without
limitation, all costs of resurfacing and restriping parking areas), signs and
directories on the Building and/or the Project, landscaping (including
maintenance contracts and fees payable to landscaping consultants), amenities,
sprinkler systems, sidewalks, walkways, driveways, curbs, lighting systems and
security services, if any, provided by Landlord for the Common Areas, and any
charges, assessments, costs or fees levied by any association or entity of which
the Project or any part thereof is a member or to which the Project or any part
thereof is subject.
(5) Parking Charges. Any parking charges or other costs levied,
assessed or imposed by, or at the direction of, or resulting from statutes or
regulations, or interpretations thereof, promulgated by any governmental
authority or insurer in connection with the use or occupancy of the Building or
the Project.
(6) Maintenance and Repair Costs. Except for costs which are the
responsibility of Landlord pursuant to Paragraph 13(b) below, all costs to
maintain, repair, and replace the Premises, the Building and/or the Project or
any part thereof, including without limitation, (i) all costs paid under
maintenance and service agreements such as contracts for janitorial, security
and refuse removal, (ii) all costs to maintain, repair and replace the roof
coverings of the Building or the Project or any part thereof, (iii) all costs to
maintain, repair and replace the heating, ventilating, air conditioning,
plumbing, sewer, drainage, electrical, fire protection, life safety and security
systems and other mechanical and electrical systems and equipment serving the
Premises, the Building and/or the Project or any
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<PAGE> 13
part thereof (collectively, the "SYSTEMS"), (iv) the cost of all cleaning
and janitorial services and supplies, and (v) the cost of window glass
replacement and repair.
(7) Life Safety Costs. All costs to install, maintain, repair and
replace all life safety systems, including, without limitation, all fire alarm
systems, serving the Premises, the Building and/or the Project or any part
thereof (including all maintenance contracts and fees payable to life safety
consultants) whether such systems are or shall be required by Landlord's
insurance carriers, Laws (as hereinafter defined) or otherwise.
(8) Management and Administration. All costs for management and
administration of the Premises, the Building and/or the Project or any part
thereof, including, without limitation, a property management fee, accounting,
auditing, billing, postage, salaries and benefits for clerical and supervisory
employees, whether located on the Project or off-site, payroll taxes and legal
and accounting costs and fees for licenses and permits related to the ownership
and operation of the Project.
Notwithstanding anything in this Paragraph 4(b) to the contrary, with
respect to all sums payable as Additional Rent under this Paragraph 4(b) for the
repair or replacement of any item or the construction, installation or
acquisition of any new item in connection with the physical operation of the
Premises, the Building or the Project (i.e., HVAC, roof membrane or coverings
and parking area) which is a capital item the repair or replacement of which
properly would be capitalized under generally accepted accounting principles,
Tenant shall be required to pay only its Percentage Share of the prorata share
of the cost of the item falling due within the Term (including any Renewal Term)
based upon the amortization of the same over the useful life of such item, as
reasonably determined by Landlord.
(c) EXCLUSIONS FROM ADDITIONAL RENT. Notwithstanding anything to the
contrary contained in Paragraph 4(b) above, the following items shall be
specifically excluded from the definition of "Expenses":
(1) Principal and interest payments and loan fees on mortgages or
deeds of trust encumbering the Building, and all rental and other sums payable
under any ground lease affecting the Building, unless such costs are
attributable to the activities of Tenant or Tenant's Agents on the Project, or
as a result of Tenant's breach or default under this Lease;
(2) Salaries of executive officers of Landlord above the level of
asset manager or its equivalent;
(3) Reserves for Expenses payable or projected to be incurred by
Landlord in future years, except as provided in Paragraph 4(b)(1) above with
respect to Taxes and Assessments;
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<PAGE> 14
(4) Deductions for depreciation and other non-cash expenditures;
(5) Leasing commissions and attorneys' fees in connection with the
preparation and negotiation of letters of intent, leases, subleases and/or
assignments with other tenants of the Building;
(6) The cost (including permit, license and inspection costs) of
performing tenant improvements and alterations for other tenants of the
Building, and the cost of services that Landlord provides selectively to one or
more tenants of the Building, the cost of which services is separately charged
to and reimbursed by such tenant or tenants;
(7) Excess costs, fines or penalties incurred because Landlord
intentionally and willfully violated any governmental rule or authority; for
purposes of this clause (7), "EXCESS COSTS" shall mean the excess costs
resulting from such violation and shall exclude the ordinary costs which would
have been incurred in complying with such governmental rule or authority absent
such violation;
(8) Excess costs, fines or penalties incurred because Landlord
intentionally and willfully violated any terms or conditions of this Lease or
any other lease relating to the Project; for purposes of this clause (8),
"EXCESS COSTS" shall mean the excess costs resulting from such violation and
shall exclude the ordinary costs which would have been incurred in complying
with such terms and conditions absent such violation; and
(9) the cost of repairing and maintaining the structural portions of
the roof (specifically excluding the roof coverings), the foundation, the
footings, the floor slab, and the load bearing walls and exterior walls of the
Building (excluding any glass and any routine maintenance, including, without
limitation, any painting, sealing, patching and waterproofing of such walls).
Notwithstanding the specific itemization elsewhere in this Lease as to
certain components of Expenses, Landlord shall not be entitled to recover from
all tenants of the Project more than one hundred percent (100%) of Expenses.
(d) PAYMENT OF ADDITIONAL RENT.
(1) During the last month of the Base Year and each calendar year
thereafter, or as soon thereafter as practicable, Landlord shall submit to
Tenant an estimate of monthly Additional Rent for the following calendar year,
and Tenant shall pay such estimated Additional Rent on a monthly basis, in
advance, on the first day of each month. Tenant shall continue to make said
monthly payments until notified by Landlord of a change therein. By April 1 of
each calendar year, Landlord shall endeavor to provide to Tenant a statement
("EXPENSE STATEMENT") showing the actual Additional Rent due to Landlord for the
prior calendar year. If the total of the monthly payments of Additional Rent
that Tenant has made for the
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<PAGE> 15
prior calendar year is less than the actual Additional Rent chargeable to Tenant
for such prior calendar year, then Tenant shall pay the difference in a lump sum
within fifteen (15) days after receipt of such Expense Statement from Landlord.
Any overpayment by Tenant of Additional Rent for the prior calendar year shall
be credited towards the Additional Rent next due.
(2) Landlord's then-current annual operating and capital budgets for
the Building and the Project or the pertinent part thereof shall be used for
purposes of calculating Tenant's monthly payment of estimated Additional Rent
for the current year, subject to adjustment as provided above. Landlord shall
make the final determination of Additional Rent for the portion of the year in
which this Lease terminates as soon as possible after termination of such year.
Even though the Term has expired and Tenant has vacated the Premises, Tenant
shall remain liable for payment of any amount due to Landlord in excess of the
estimated Additional Rent previously paid by Tenant, and, conversely, Landlord
shall promptly return to Tenant any overpayment. Failure of Landlord to submit
Expense Statements as called for herein shall not be deemed a waiver of Tenant's
obligation to pay Additional Rent as herein provided.
(3) With respect to Expenses which Landlord allocates to the Building,
Tenant's "PROPORTIONATE Share" shall be the percentage set forth in the Basic
Lease Information as Tenant's Proportionate Share of the Building, as adjusted
by Landlord from time to time for a remeasurement of or changes in the physical
size of the Premises or the Building, whether such changes in size are due to an
addition to or a sale or conveyance of a portion of the Building or otherwise.
With respect to Expenses which Landlord allocates to the Project as a whole or
to only a portion of the Project, Tenant's "PROPORTIONATE SHARE" shall be, with
respect to Expenses which Landlord allocates to the Project as a whole, the
percentage set forth in the Basic Lease Information as Tenant's Proportionate
Share of the Project and, with respect to Expenses which Landlord allocates to
only a portion of the Project, a percentage calculated by Landlord from time to
time in its sole discretion and furnished to Tenant in writing, in either case
as adjusted by Landlord from time to time for a remeasurement of or changes in
the physical size of the Premises or the Project, whether such changes in size
are due to an addition to or a sale or conveyance of a portion of the Project or
otherwise. Notwithstanding the foregoing, Landlord may equitably adjust Tenant's
Proportionate Share(s) for all or part of any item of expense or cost
reimbursable by Tenant that relates to a repair, replacement, or service that
benefits only the Premises or only a portion of the Building and/or the Project
or that varies with the occupancy of the Building and/or the Project. Without
limiting the generality of the foregoing, Tenant understands and agrees that
Landlord shall have the right to adjust Tenant's Proportionate Share(s) of any
Utility Expenses based upon Tenant's use of the Utilities or similar services as
reasonably estimated and determined by Landlord based upon factors such as size
of the Premises and intensity of use of such Utilities by Tenant such that
Tenant shall pay the portion of such charges reasonably consistent with Tenant's
use of such Utilities and similar services.
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<PAGE> 16
(4) In the event the average occupancy level of the Building or the
Project for the Base Year and/or any subsequent Comparison Year is not ninety
percent (90%) or more of full occupancy, then the Expenses for such year shall
be apportioned among the tenants by the Landlord to reflect those costs which
would have occurred had the Building or the Project, as applicable, been ninety
percent (90%) occupied during such year.
(e) GENERAL PAYMENT TERMS. The Base Rent, Additional Rent and all other
sums payable by Tenant to Landlord hereunder, including, without limitation, any
late charges assessed pursuant to Paragraph 6 below and any interest assessed
pursuant to Paragraph 45 below, are referred to as the "RENT". All Rent shall be
paid without deduction, offset or abatement in lawful money of the United States
of America. Checks are to be made payable to Harbor Investment Partners and
shall be mailed to: Dept. No. 66218, El Monte, California 91735-6128, or to such
other person or place as Landlord may, from time to time, designate to Tenant in
writing. The Rent for any fractional part of a calendar month at the
commencement or termination of the Lease term shall be a prorated amount of the
Rent for a full calendar month based upon a thirty (30) day month.
(f) AUDIT RIGHTS. Provided Tenant is not in Default under the terms of this
Lease (nor is any event occurring which with the giving of notice or the passage
of time, or both, would constitute a Default hereunder), Tenant, at its sole
expense subject to the last sentence of this Paragraph 4(f), shall have the
right within ninety (90) days after the delivery of each Expense Statement to
review and audit Landlord's books and records regarding such Expense Statement
for the sole purpose of determining the accuracy of such Expense Statement. Such
review or audit shall be performed by a nationally recognized accounting firm
that calculates its fees with respect to hours actually worked and that does not
discount its time or rate (as opposed to a calculation based upon percentage of
recoveries or other incentive arrangement), shall take place during normal
business hours in the office of Landlord or Landlord's property manager and
shall be completed within three (3) business days after the commencement
thereof. If Tenant does not so review or audit Landlord's books and records,
Landlord's Expense Statement shall be final and binding upon Tenant. In the
event that Tenant determines on the basis of its review of Landlord's books and
records that the amount of Expenses paid by Tenant pursuant to this Paragraph 4
for the period covered by such Expense Statement is less than or greater than
the actual amount properly payable by Tenant under the terms of this Lease,
Tenant shall promptly pay any deficiency to Landlord or, if Landlord concurs
with the results of such audit, Landlord shall promptly refund any excess
payment to Tenant, as the case may be.
5. UTILITIES AND SERVICES
(a) From 7:00 a.m. to 6:00 p.m. on weekdays ("NORMAL BUSINESS HOURS")
(excluding legal holidays), Landlord shall furnish to the Premises electricity
for lighting and operation of low-power usage office machines, water, heat and
air conditioning, and elevator service. During all other hours, Landlord shall
furnish such service except for heat and air
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conditioning. Landlord shall provide janitorial services for the Premises on
weekdays (excluding legal holidays) as determined necessary by Landlord.
Landlord shall cause such janitorial services to generally be provided after
Normal Business Hours.
(b) If requested by Tenant, Landlord shall furnish heat and air
conditioning at times other than Normal Business Hours and the cost of such
services, based upon actual usage (as reflected on a meter installed in or
around the Premises by Landord at the cost of Tenant) or Landlord's reasonable
estimate of the actual cost thereof, shall be paid by Tenant as Additional Rent,
payable concurrently with the next installment of Base Rent.
(c) Tenant acknowledges that the Premises, the Building and/or the Project
may become subject to the rationing of Utility services or restrictions on
Utility use as required by a public utility company, governmental agency or
other similar entity having jurisdiction thereof. Tenant acknowledges and agrees
that its tenancy and occupancy hereunder shall be subject to such rationing or
restrictions as may be imposed upon Landlord, Tenant, the Premises, the Building
and/or the Project, and Tenant shall in no event be excused or relieved from any
covenant or obligation to be kept or performed by Tenant by reason of any such
rationing or restrictions. Tenant agrees to comply with energy conservation
programs implemented by Landlord by reason of rationing, restrictions or Laws.
(d) Landlord shall not be liable for any loss, injury or damage to
property caused by or resulting from any variation, interruption, or failure of
Utilities due to any cause whatsoever, or from failure to make any repairs or
perform any maintenance. No temporary interruption or failure of such services
incident to the making of repairs, alterations, improvements, or due to
accident, strike, or conditions or other events shall be deemed an eviction of
Tenant or relieve Tenant from any of its obligations hereunder. In no event
shall Landlord be liable to Tenant for any damage to the Premises or for any
loss, damage or injury to any property therein or thereon occasioned by
bursting, rupture, leakage or overflow of any plumbing or other pipes
(including, without limitation, water, steam, and/or refrigerant lines),
sprinklers, tanks, drains, drinking fountains or washstands, or other similar
cause in, above, upon or about the Premises, the Building, or the Project.
6. LATE CHARGE
Notwithstanding any other provision of this Lease, Tenant hereby
acknowledges that late payment to Landlord of Rent, or other amounts due
hereunder will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. If any Rent or
other sums due from Tenant are not received by Landlord or by Landlord's
designated agent within five (5) days after their due date, then Tenant shall
pay to Landlord a
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late charge equal to ten percent (10%) of such overdue amount, plus any costs
and attorneys' fees incurred by Landlord by reason of Tenant's failure to pay
Rent and/or other charges when due hereunder. Landlord and Tenant hereby agree
that such late charges represent a fair and reasonable estimate of the cost that
Landlord will incur by reason of Tenant's late payment and shall not be
construed as a penalty. Landlord's acceptance of such late charges shall not
constitute a waiver of Tenant's default with respect to such overdue amount or
estop Landlord from exercising any of the other rights and remedies granted
under this Lease.
Initials: Landlord _______ Tenant _______
7. LETTER OF CREDIT
(a) Upon execution of this Lease, Tenant shall deliver to Landlord, at
Tenant's sole cost and expense, the Letter of Credit described below in the
amount specified in the Basic Lease Information (the "LC FACE AMOUNT") as
security for Tenant's performance of all of Tenant's covenants and obligations
under this Lease; provided, however, that neither the Letter of Credit nor any
Letter of Credit Proceeds (as defined below) shall be deemed an advance rent
deposit or an advance payment of any other kind, or a measure of Landlord's
damages upon Tenant's Default. The Letter of Credit shall be maintained in
effect from the date hereof through the date that is sixty (60) days after the
Expiration Date (the "LC TERMINATION DATE"). On the LC Termination Date,
Landlord shall return to Tenant the Letter of Credit and any Letter of Credit
Proceeds then held by Landlord (other than those Letter of Credit Proceeds
Landlord is entitled to retain under the terms of this Paragraph 7(a));
provided, however, that in no event shall any such return be construed as an
admission by Landlord that Tenant has performed all of its obligations
hereunder. Landlord shall not be required to segregate the Letter of Credit
Proceeds from its other funds and no interest shall accrue or be payable to
Tenant with respect thereto. Landlord may (but shall not be required to) draw
upon the Letter of Credit and use the proceeds therefrom (the "LETTER OF CREDIT
PROCEEDS") or any portion thereof to (i) cure any Default under this Lease and
to compensate Landlord for any loss or damage Landlord incurs as a result of
such Default, (ii) repair damage to the Premises caused by Tenant, (iii) restore
the Premises upon termination of this Lease to the condition required by
Paragraph 11 below, and (iv) reimburse Landlord for the payment of any amount
which Landlord may reasonably spend or be required to spend by reason of
Tenant's Default, it being understood that any use of the Letter of Credit
Proceeds shall not constitute a bar or defense to any of Landlord's remedies set
forth in Paragraph 25 below. In such event and upon written notice from Landlord
to Tenant specifying the amount of the Letter of Credit Proceeds so utilized by
Landlord and the particular purpose for which such amount was applied, Tenant
shall immediately deliver to Landlord an amendment to the Letter of Credit or a
replacement Letter of Credit in an amount equal to the full LC Face Amount.
Tenant's failure to deliver such replacement Letter of Credit to Landlord within
ten (10) days of Landlord's notice shall constitute a Default hereunder.
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(b) On or about the date that is six (6) months after the Commencement
Date and every six (6) months thereafter, Landlord shall, at Tenant's written
request, review Tenant's financial statements and other information requested by
Landlord regarding the prospects for Tenant's continued business operations
throughout the remainder of the Term (collectively, "TENANT'S FINANCIALS"). In
the event Tenant's Financials are acceptable to Landlord in its sole and
absolute discretion, then Landlord shall permit Tenant to reduce the LC Face
Amount to an amount equal to four (4) months of Base Rent at the time of such
reduction.
(c) As used herein, Letter of Credit shall mean an unconditional, stand-by
irrevocable letter of credit (herein referred to as the "LETTER OF CREDIT")
issued by a Silicon Valley office of Silicon Valley Bank or the San Francisco
office of a major national bank insured by the Federal Deposit Insurance
Corporation and otherwise satisfactory to Landlord (the "BANK"), naming Landlord
as beneficiary, in the amount of the LC Face Amount, and otherwise in form and
substance satisfactory to Landlord. The Letter of Credit shall be for a one-year
term and shall provide: (i) that Landlord may make partial and multiple draws
thereunder, up to the face amount thereof, (ii) that Landlord may draw upon the
Letter of Credit up to the full amount thereof and the Bank will pay to Landlord
the amount of such draw upon receipt by the Bank of a sight draft signed by
Landlord and accompanied by a written certification from Landlord to the Bank
stating either that: (A) a Default has occurred and is continuing under this
Lease and any applicable grace period has expired, or (B) Landlord has not
received notice from the Bank at least thirty (30) days prior to the then
current expiry date of the Letter of Credit that the Letter of Credit will be
renewed by the Bank for at least one (1) year beyond the relevant annual
expiration date or, in the case of the last year of the Term, sixty (60) days
after the Expiration Date, together with a replacement Letter of Credit or a
modification to the existing Letter of Credit effectuating such renewal, and
Tenant has not otherwise furnished Landlord with a replacement Letter of Credit
as hereinafter provided; and (iii) that, in the event of Landlord's assignment
or other transfer of its interest in this Lease, the Letter of Credit shall be
freely transferable by Landlord, without recourse and without the payment of any
fee or consideration, to the assignee or transferee of such interest and the
Bank shall confirm the same to Landlord and such assignee or transferee. In the
event that the Bank shall fail to (y) notify Landlord that the Letter of Credit
will be renewed for at least one (1) year beyond the then applicable expiration
date, and (z) deliver to Landlord a replacement Letter of Credit or a
modification to the existing Letter of Credit effectuating such renewal, and
Tenant shall not have otherwise delivered to Landlord, at least thirty (30) days
prior to the relevant annual expiration date, a replacement Letter of Credit in
the amount required hereunder and otherwise meeting the requirements set forth
above, then Landlord shall be entitled to draw on the Letter of Credit as
provided above, and shall hold the proceeds of such draw as Letter of Credit
Proceeds pursuant to Paragraph 7(a) above.
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8. POSSESSION
(a) TENANT'S RIGHT OF POSSESSION. Subject to Paragraph 8(b), Tenant shall
be entitled to possession of the Premises upon commencement of the Term.
(b) DELAY IN DELIVERING POSSESSION. If for any reason whatsoever, Landlord
cannot deliver possession of the Premises to Tenant on or before the Estimated
Commencement Date, this Lease shall not be void or voidable, nor shall Landlord,
or Landlord's agents, advisors, employees, partners, shareholders, directors,
invitees or independent contractors (collectively, "LANDLORD'S AGENTS"), be
liable to Tenant for any loss or damage resulting therefrom. Tenant shall not be
liable for Rent until Landlord delivers possession of the Premises to Tenant.
The Expiration Date shall be extended by the same number of days that Tenant's
possession of the Premises was delayed beyond the Estimated Commencement Date.
(c) EARLY OCCUPANCY. Subject to the vacancy of the Premises by the prior
tenant thereof, Tenant shall be permitted to move its furniture, trade fixtures,
equipment, machinery, goods and supplies into the Premises from and after
October 15, 1997 and prior to the Estimated Commencement Date specified in the
Basic Lease Information. Such entry upon the Premises shall be subject to all of
the provisions of this Lease, except that Tenant shall not be required to pay
Base Rent or Additional Rent as long as Tenant is not operating its business in
the Premises during such early possession period; provided, however, that Tenant
shall have previously provided Landlord with proof of Tenant's insurance as set
forth in Paragraph 15 of this Lease. All materials, work, installations,
equipment and decorations of any nature brought upon or installed by Tenant in
the Premises prior to the Commencement Date shall be at Tenant's sole risk.
(d) RIGHT TO TERMINATE LEASE. Notwithstanding the terms of Paragraph 8(b)
above, if possession of the Premises is not delivered to Tenant on or before
December 31, 1997 ("TERMINATION OPTION DATE"), Tenant's sole remedy shall be the
option to terminate this Lease by the delivery to Landlord of written notice
within ten (10) days after the Termination Option Date. If Tenant fails to
deliver such notice to Landlord in a timely manner as provided herein, Tenant's
right to terminate this Lease shall be null and void and of no further force or
effect. Tenant shall not be entitled to terminate or cancel this Lease for any
delay in delivery of the Premises prior to the Termination Option Date.
9. USE OF PREMISES
(a) PERMITTED USE. The use of the Premises by Tenant and Tenant's agents,
advisors, employees, partners, shareholders, directors, invitees and independent
contractors (collectively, "TENANT'S AGENTS") shall be solely for the Permitted
Use specified in the Basic Lease Information and for no other use. Tenant shall
not permit any objectionable or unpleasant odor, smoke, dust, gas, noise or
vibration to emanate from or near the Premises. The Premises shall not be used
to create any
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nuisance or trespass, for any illegal purpose, for any purpose not permitted by
Laws, for any purpose that would invalidate the insurance or increase the
premiums for insurance on the Premises, the Building or the Project or for any
purpose or in any manner that would interfere with other tenants' use or
occupancy of the Project. If any of Tenant's office machines or equipment
disturb any other tenant in the Building, then Tenant shall provide adequate
insulation or take such other action as may be necessary to eliminate the noise
or disturbance. Tenant agrees to pay to Landlord, as Additional Rent, any
increases in premiums on policies resulting from Tenant's Permitted Use or any
other use or action by Tenant or Tenant's Agents which increases Landlord's
premiums or requires additional coverage by Landlord to insure the Premises.
Tenant agrees not to overload the floor(s) of the Building.
(b) COMPLIANCE WITH GOVERNMENTAL REGULATIONS AND PRIVATE RESTRICTIONS.
Tenant and Tenant's Agents shall, at Tenant's expense, faithfully observe and
comply with (1) all municipal, state and federal laws, statutes, codes, rules,
regulations, ordinances, requirements, and orders (collectively, "LAWS"), now in
force or which may hereafter be in force pertaining to the Premises or Tenant's
use of the Premises, the Building or the Project; (2) all recorded covenants,
conditions and restrictions affecting the Project ("PRIVATE RESTRICTIONS") now
in force or which may hereafter be in force; and (3) any and all rules and
regulations set forth in EXHIBIT C and any other rules and regulations now or
hereafter promulgated by Landlord related to parking or the operation of the
Premises, the Building and/or the Project (collectively, the "RULES AND
REGULATIONS"). The judgment of any court of competent jurisdiction, or the
admission of Tenant in any action or proceeding against Tenant, whether Landlord
be a party thereto or not, that Tenant has violated any such Laws or Private
Restrictions, shall be conclusive of that fact as between Landlord and Tenant.
(c) COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Landlord and Tenant
hereby agree and acknowledge that the Premises, the Building and/or the Project
may be subject to, among other Laws, the requirements of the Americans with
Disabilities Act, a federal law codified at 42 U.S.C. 12101 et seq., including,
but not limited to Title III thereof, and all regulations and guidelines related
thereto, together with any and all laws, rules, regulations, ordinances, codes
and statutes now or hereafter enacted by local or state agencies having
jurisdiction thereof, including all requirements of Title 24 of the State of
California, as the same may be in effect on the date of this Lease and may be
hereafter modified, amended or supplemented (collectively, the "ADA"). Any
Tenant Improvements to be constructed hereunder shall be in compliance with the
requirements of the ADA, and all costs incurred for purposes of compliance
therewith shall be a part of and included in the costs of the Tenant
Improvements. Tenant shall be solely responsible for conducting its own
independent investigation of this matter and for ensuring that the design of all
Tenant Improvements strictly complies with all requirements of the ADA. Subject
to reimbursement pursuant to Paragraph 4 above, if any barrier removal work or
other work is required to the Building, the
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Common Areas or the Project under the ADA, then such work shall be the
responsibility of Landlord; provided, if such work is required under the ADA as
a result of Tenant's use of the Premises or any work or Alteration (as
hereinafter defined) made to the Premises by or on behalf of Tenant, then such
work shall be performed by Landlord at the sole cost and expense of Tenant.
Except as otherwise expressly provided in this provision, Tenant shall be
responsible at its sole cost and expense for fully and faithfully complying with
all applicable requirements of the ADA relating to Tenant's use and occupancy of
the Premises and the operation of its business therein, including without
limitation, not discriminating against any disabled persons in the operation of
Tenant's business in or about the Premises, and offering or otherwise providing
auxiliary aids and services as, and when, required by the ADA. Within ten (10)
days after receipt, Tenant shall advise Landlord in writing, and provide
Landlord with copies of (as applicable), any notices alleging violation of the
ADA relating to any portion of the Premises, the Building or the Project; any
claims made or threatened orally or in writing regarding noncompliance with the
ADA and relating to any portion of the Premises, the Building, or the Project;
or any governmental or regulatory actions or investigations instituted or
threatened regarding noncompliance with the ADA and relating to any portion of
the Premises, the Building or the Project. Tenant shall and hereby agrees to
protect, defend (with counsel acceptable to Landlord) and hold Landlord and
Landlord's Agents harmless and indemnify Landlord and Landlord's Agents from and
against all liabilities, damages, claims, losses, penalties, judgments, charges
and expenses (including attorneys' fees, costs of court and expenses necessary
in the prosecution or defense of any litigation including the enforcement of
this provision) arising from or in any way related to, directly or indirectly,
Tenant's or Tenant's Agents' violation or alleged violation of the ADA. Tenant
agrees that the obligations of Tenant herein shall survive the expiration or
earlier termination of this Lease
10. ACCEPTANCE OF PREMISES
(a) By entry hereunder, Tenant accepts the Premises as suitable for
Tenant's intended use and as being in good and sanitary operating order,
condition and repair, AS IS, and without representation or warranty by Landlord
as to the condition, use or occupancy which may be made thereof. Any exceptions
to the foregoing must be by written agreement executed by Landlord and Tenant.
(b) Notwithstanding the terms of Paragraph 10(a) above, Landlord shall
cause the HVAC, electrical and plumbing systems serving the Premises to be in
good working order and the roof on the Building to be in good condition on the
Possession Date. Any claims by Tenant under the preceding sentence shall be made
in writing not later than the fifteenth (15th) day after the Commencement Date.
In the event Tenant fails to deliver a written claim to Landlord on or before
such fifteenth (15th) day, then Landlord shall be conclusively deemed to have
satisfied its obligations under this Paragraph 10.
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(c) Prior to the Commencement Date, Landlord shall clean the carpet, touch
up the paint where required, replace all stained and/or damaged ceiling tiles
and replace any burned-out light bulbs in the Premises. Except for the
foregoing, Landlord shall have no obligation to remodel, improve or otherwise
alter the Premises prior to or after the Commencement Date.
11. SURRENDER
Tenant agrees that on the last day of the Term, or on the sooner
termination of this Lease, Tenant shall surrender the Premises to Landlord (a)
in good condition and repair (damage by acts of God, fire, and normal wear and
tear excepted), but with all interior walls painted or cleaned so they appear
painted, any carpets cleaned, all floors cleaned and waxed and all non-working
light bulbs and ballasts replaced, and (b) otherwise in accordance with
Paragraph 32(h). Normal wear and tear shall not include any damage or
deterioration to the floors of the Premises arising from the use of forklifts
in, on or about the Premises (including, without limitation, any marks or stains
on any portion of the floors) any damage or deterioration that would have been
prevented by proper maintenance by Tenant, or Tenant otherwise performing all of
its obligations under this Lease. On or before the expiration or sooner
termination of this Lease, (i) Tenant shall remove all of Tenant's Property (as
hereinafter defined) and Tenant's signage from the Premises, the Building and
the Project and repair any damage caused by such removal, and (ii) Landlord may,
by notice to Tenant given not later than ninety (90) days prior to the
Expiration Date (except in the event of a termination of this Lease prior to the
scheduled Expiration Date, in which event no advance notice shall be required),
require Tenant at Tenant's expense to remove any or all Alterations and to
repair any damage caused by such removal. Any of Tenant's Property not so
removed by Tenant as required herein shall be deemed abandoned and may be
stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant
waives all claims against Landlord for any damages resulting from Landlord's
retention and disposition of such property; provided, however, that Tenant shall
remain liable to Landlord for all costs incurred in storing and disposing of
such abandoned property of Tenant. All Tenant Improvements and Alterations
except those which Landlord requires Tenant to remove shall remain in the
Premises as the property of Landlord. If the Premises are not surrendered at the
end of the Term or sooner termination of this Lease, and in accordance with the
provisions of this Paragraph 11 and Paragraph 32(h) below, Tenant shall continue
to be responsible for the payment of Rent (as the same may be increased pursuant
to Paragraph 35 below) until the Premises are so surrendered in accordance with
said Paragraphs, and Tenant shall indemnify, defend and hold Landlord harmless
from and against any and all loss or liability resulting from delay by Tenant in
so surrendering the Premises including, without limitation, any loss or
liability resulting from any claim against Landlord made by any succeeding
tenant or prospective tenant founded on or resulting from such delay and losses
to Landlord due to lost opportunities to lease any portion of
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the Premises to any such succeeding tenant or prospective tenant, together with,
in each case, actual attorneys' fees and costs.
12. ALTERATIONS AND ADDITIONS
(a) Tenant shall not make, or permit to be made, any alteration, addition
or improvement (hereinafter referred to individually as an "ALTERATION" and
collectively as the "ALTERATIONS") to the Premises or any part thereof without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld; provided, however, that Landlord shall have the right in its sole and
absolute discretion to consent or to withhold its consent to any Alteration
which affects the interior or exterior walls of the Premises, the roof system,
the structural portions of the Premises, the Building or the Project or the
Systems serving the Premises, the Building and/or the Project or any portion
thereof. Landlord shall use commercially reasonable efforts to approve or deny
Tenant's request to proceed with the installation of Alterations within thirty
(30) days after Landlord's receipt of such request in writing, together with
plans and specifications for such Alterations and such other documentation as
Landlord may require in connection therewith. Notwithstanding the foregoing,
Tenant shall have the right without the consent of Landlord, but subject to full
compliance with the other terms of this Paragraph 12, to make nonstructural and
nonmechanical Alterations not exceeding Two Thousand Five Hundred Dollars
($2,500) in cost on an individual basis or Ten Thousand Dollars ($10,000) in the
aggregate over the Term (collectively, "PERMITTED ALTERATIONS"), provided that
(A) Tenant shall not move or alter any walls in the Premises in connection with
the making of such Permitted Alterations, (B) such Permitted Alterations shall
not affect the HVAC, plumbing, electrical, fire protection, life safety,
security and other mechanical, electrical and communications systems of the
Building, and (C) such Permitted Alterations shall not be visible from the
exterior of the Premises.
(b) Any Alteration to the Premises shall be at Tenant's sole cost and
expense, in compliance with all applicable Laws and all requirements requested
by Landlord, including, without limitation, the requirements of any insurer
providing coverage for the Premises or the Project or any part thereof, and in
accordance with plans and specifications approved in writing by Landlord, and
shall be constructed and installed by a contractor approved in writing by
Landlord. As a further condition to giving consent, Landlord may require Tenant
to provide Landlord, at Tenant's sole cost and expense, a payment and
performance bond in form acceptable to Landlord, in a principal amount not less
than one and one-half times the estimated costs of such Alterations, to ensure
Landlord against any liability for mechanic's and materialmen's liens and to
ensure completion of work. Before Alterations may begin, valid building permits
or other permits or licenses required must be furnished to Landlord, and, once
the Alterations begin, Tenant will diligently and continuously pursue their
completion. Landlord may monitor construction of the Alterations and Tenant
shall reimburse Landlord for its costs (including, without limitation, the costs
of any construction manager retained by
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Landlord) in reviewing plans and documents and in monitoring construction.
Tenant shall maintain during the course of construction, at its sole cost and
expense, builders' risk insurance for the amount of the completed value of the
Alterations on an all-risk non-reporting form covering all improvements under
construction, including building materials, and other insurance in amounts and
against such risks as Landlord shall reasonably require in connection with the
Alterations. In addition to and without limitation on the generality of the
foregoing, Tenant shall ensure that its contractor(s) procure and maintain in
full force and effect during the course of construction a "broad form"
commercial general liability and property damage policy of insurance naming
Landlord, Tenant and Landlord's lenders as additional insureds. The minimum
limit of coverage of the aforesaid policy shall be in the amount of not less
than Three Million Dollars ($3,000,000.00) for injury or death of one person in
any one accident or occurrence and in the amount of not less than Three Million
Dollars ($3,000,000.00) for injury or death of more than one person in any one
accident or occurrence, and shall contain a severability of interest clause or a
cross liability endorsement. Such insurance shall further insure Landlord and
Tenant against liability for property damage of at least One Million Dollars
($1,000,000.00).
(c) All Alterations, including, but not limited to, heating, lighting,
electrical, air conditioning, fixed partitioning, drapery, wall covering and
paneling, built-in cabinet work and carpeting installations made by Tenant,
together with all property that has become an integral part of the Premises or
the Building (but not including any temporary cubicles or similar temporary
partitions), shall at once be and become the property of Landlord, and shall not
be deemed trade fixtures or Tenant's Property. If requested by Landlord, Tenant
will pay, prior to the commencement of construction, an amount determined by
Landlord necessary to cover the costs of demolishing such Alterations and/or the
cost of returning the Premises and the Building to its condition prior to such
Alterations.
(d) No private telephone systems and/or other related computer or
telecommunications equipment or lines may be installed without Landlord's prior
written consent, which consent may be given or withheld by Landlord in
accordance with the standards for consent set forth in Paragraph 12(a) above. If
Landlord gives such consent, all equipment must be installed within the Premises
and, at the request of Landlord made at any time prior to the expiration of the
Term, removed upon the expiration or sooner termination of this Lease and the
Premises restored to the same condition as before such installation.
(e) Notwithstanding anything herein to the contrary, before installing any
equipment or lights which generate an undue amount of heat in the Premises, or
if Tenant plans to use any high-power usage equipment in the Premises, Tenant
shall obtain the written permission of Landlord. Landlord may refuse to grant
such permission unless Tenant agrees to pay the costs to Landlord for
installation of supplementary air conditioning capacity or electrical systems
necessitated by such equipment.
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(f) Tenant agrees not to proceed to make any Alterations, notwithstanding
consent from Landlord to do so, until Tenant notifies Landlord in writing of the
date Tenant desires to commence construction or installation of such Alterations
and Landlord has approved such date in writing, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work.
13. MAINTENANCE AND REPAIRS OF PREMISES
(a) MAINTENANCE BY TENANT. Throughout the Term, Tenant shall, at its sole
expense, subject to Paragraphs 5(a) and 13(b) hereof, (1) keep and maintain in
good order and condition the Premises and Tenant's Property, and (2) keep and
maintain in good order and condition, repair and replace all of Tenant's
security systems in or about or serving the Premises. Tenant shall not do nor
shall Tenant allow Tenant's Agents to do anything to cause any damage,
deterioration or unsightliness to the Premises, the Building or the Project.
(b) MAINTENANCE BY LANDLORD. Subject to the provisions of Paragraphs 12(a),
21 and 22, and further subject to Tenant's obligation under Paragraph 4 to
reimburse Landlord, in the form of Additional Rent, for Tenant's Proportionate
Share(s) of the cost and expense of the following items, Landlord agrees to
repair and maintain the following items: the roof coverings (provided that
Tenant installs no additional air conditioning or other equipment on the roof
that damages the roof coverings, in which event Tenant shall pay all costs
resulting from the presence of such additional equipment); the Systems serving
the Premises and the Building; and the Parking Areas, pavement, landscaping,
sprinkler systems, sidewalks, driveways, curbs, and lighting systems in the
Common Areas. Subject to the provisions of Paragraphs 13(a), 21 and 22,
Landlord, at its own cost and expense, agrees to repair and maintain the
following items: the structural portions of the roof (specifically excluding the
roof coverings), the foundation, the footings, the floor slab, and the load
bearing walls and exterior walls of the Building (excluding any glass and any
routine maintenance, including, without limitation, any painting, sealing,
patching and waterproofing of such walls). Notwithstanding anything in this
Paragraph 13 to the contrary, Landlord shall have the right to either repair or
to require Tenant to repair any damage to any portion of the Premises, the
Building and/or the Project caused by or created due to any act, omission,
negligence or willful misconduct of Tenant or Tenant's Agents and to restore the
Premises, the Building and/or the Project, as applicable, to the condition
existing prior to the occurrence of such damage; provided, however, that in the
event Landlord elects to perform such repair and restoration work, Tenant shall
reimburse Landlord upon demand for all costs and expenses incurred by Landlord
in connection therewith; provided, further that if any of said costs are covered
by any policy of insurance maintained by Landlord pursuant to Paragraph 14
below, then Landlord shall submit a claim under the applicable policy and shall,
solely to the extent of proceeds actually received by Landlord under such
policy, reimburse Tenant for the
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actual costs so paid by Tenant to Landlord. Landlord's obligation hereunder to
repair and maintain is subject to the condition precedent that Landlord shall
have received written notice of the need for such repairs and maintenance and a
reasonable time to perform such repair and maintenance. Tenant shall promptly
report in writing to Landlord any defect or other condition which Landlord is
required to repair, and failure to so report such defects shall make Tenant
responsible to Landlord for the costs and expenses of repairing any additional
damage or deterioration occurring after the date Tenant obtains knowledge of
such defective condition and any liability incurred by Landlord by reason of
Tenant's failure to notify Landlord of such defective condition in a timely
manner as provided herein.
(c) TENANT'S WAIVER OF RIGHTS. Tenant hereby expressly waives all rights to
make repairs at the expense of Landlord or to terminate this Lease, as provided
for in California Civil Code Sections 1941 and 1942, and 1932(1), respectively,
and any similar or successor statute or law in effect or any amendment thereof
during the Term.
14. LANDLORD'S INSURANCE
Landlord shall purchase and keep in force fire, extended coverage and "all
risk" insurance covering the Building and the Project and commercial general
liability insurance covering the Project, insuring Landlord against any
liability arising out of the ownership, use, occupancy or maintenance of the
Common Areas ("LANDLORD'S LIABILITY POLICY"). Tenant shall, at its sole cost and
expense, comply with any and all reasonable requirements pertaining to the
Premises, the Building and the Project of any insurer necessary for the
maintenance of reasonable fire and commercial general liability insurance,
covering the Building and the Project. Landlord, at Tenant's cost, may maintain
"Loss of Rents" insurance, insuring that the Rent will be paid in a timely
manner to Landlord for a period of at least twelve (12) months if the Premises,
the Building or the Project or any portion thereof are destroyed or rendered
unusable or inaccessible by any cause insured against under this Lease.
15. TENANT'S INSURANCE
(a) COMMERCIAL GENERAL LIABILITY INSURANCE. Tenant shall, at Tenant's
expense, secure and keep in force a commercial general liability insurance,
umbrella liability policy and property damage policy covering the Premises,
insuring Tenant, and naming Landlord and its lenders as additional insureds,
against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises. The minimum limit of coverage of such policy shall
be in the amount of not less than Two Million Dollars ($2,000,000.00) for injury
or death of one person in any one accident or occurrence and in the amount of
not less than Two Million Dollars ($2,000,000.00) for injury or death of more
than one person in any one accident or occurrence, shall include an extended
liability endorsement
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providing contractual liability coverage (which shall include coverage for
Tenant's indemnification obligations in this Lease), and shall contain a
severability of interest clause or a cross liability endorsement. Such insurance
shall further insure Landlord and Tenant against liability for property damage
of at least Two Million Dollars ($2,000,000.00). Landlord may from time to time
require commercially reasonable increases in any such limits if Landlord
believes that additional coverage is necessary or desirable. The limit of any
insurance shall not limit the liability of Tenant hereunder. No policy
maintained by Tenant under this Paragraph 15(a) shall contain a deductible
greater than ten thousand dollars ($10,000.00). No policy shall be cancelable or
subject to reduction of coverage without thirty (30) days prior written notice
to Landlord, and loss payable clauses shall be subject to Landlord's approval,
provided that Tenant may add additional loss payees without Landlord's prior
consent. Such policies of insurance shall be issued as primary policies and not
contributing with or in excess of coverage that Landlord may carry (except that
Landlord's Liability Policy shall be primary with respect to losses occurring in
the Common Areas, other than losses resulting from the acts, negligence or
willful misconduct of Tenant or Tenant's Agents), by an insurance company
authorized to do business in the State of California for the issuance of such
type of insurance coverage and rated A-:VIII or better in Best's Key Rating
Guide.
(b) PERSONAL PROPERTY INSURANCE. Tenant shall maintain in full force and
effect on all of its personal property, furniture, furnishings, trade or
business fixtures and equipment (collectively, "TENANT'S PROPERTY") on the
Premises, a policy or policies of fire and extended coverage insurance with
standard coverage endorsement to the extent of the full replacement cost
thereof. No such policy shall contain a deductible greater than two thousand
five hundred dollars ($2,500.00). During the term of this Lease the proceeds
from any such policy or policies of insurance shall be used for the repair or
replacement of the fixtures and equipment so insured to the extent necessary for
the ordinary conduct of Tenant's business. Landlord shall have no interest in
Tenant's Property or in the insurance upon Tenant's Property and will sign all
documents reasonably necessary in connection with the settlement of any claim or
loss by Tenant. Landlord will not carry insurance on Tenant's possessions.
(c) WORKER'S COMPENSATION INSURANCE; EMPLOYER'S LIABILITY INSURANCE. Tenant
shall, at Tenant's expense, maintain in full force and effect worker's
compensation insurance with not less than the minimum limits required by law,
and employer's liability insurance with a minimum limit of coverage of One
Million Dollars ($1,000,000).
(d) EVIDENCE OF COVERAGE. Tenant shall deliver to Landlord certificates of
insurance and true and complete copies of any and all endorsements required
herein for all insurance required to be maintained by Tenant hereunder at the
time of execution of this Lease by Tenant. Tenant shall, at least thirty (30)
days prior to expiration of each policy, furnish Landlord with certificates of
renewal or
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"binders" thereof. Each certificate shall expressly provide that such policies
shall not be cancellable or otherwise subject to material modification except
after thirty (30) days prior written notice to Landlord and the other parties
named as additional insureds as required in this Lease (except for cancellation
for nonpayment of premium, in which event cancellation shall not take effect
until at least ten (10) days notice has been given to Landlord).
16. INDEMNIFICATION
(a) OF LANDLORD. Except to the extent of damage caused by the gross
negligence or willful misconduct of Landlord or Landlord's Agents, Tenant shall
indemnify and hold harmless Landlord and Landlord's Agents against and from any
and all claims, liabilities, judgments, costs, demands, causes of action and
expenses (including, without limitation, reasonable attorneys' fees) to the
extent arising from (1) the use of the Premises, the Building or the Project by
Tenant or Tenant's Agents, or from any activity done, permitted or suffered by
Tenant or Tenant's Agents in or about the Premises, the Building or the Project,
and (2) any act, neglect, fault, willful misconduct or omission of Tenant or
Tenant's Agents, or from any breach or default in the terms of this Lease by
Tenant or Tenant's Agents, and (3) any action or proceeding brought on account
of any matter in items (1) or (2). If any action or proceeding is brought
against Landlord by reason of any such claim, upon notice from Landlord, Tenant
shall defend the same at Tenant's expense by counsel reasonably satisfactory to
Landlord. As a material part of the consideration to Landlord, Tenant hereby
releases Landlord and Landlord's Agents from responsibility for, waives its
entire claim of recovery for and assumes all risk of (i) damage to property or
injury to persons in or about the Premises, the Building or the Project from any
cause whatsoever (except to the extent caused by the sole active gross
negligence or willful misconduct of Landlord or Landlord's Agents or by the
failure of Landlord to observe any of the terms and conditions of this Lease, if
such failure has persisted for an unreasonable period of time after written
notice of such failure), or (ii) loss resulting from business interruption or
loss of income at the Premises. The obligations of Tenant under this Paragraph
16 shall survive any termination of this Lease.
(b) OF TENANT. Landlord shall indemnify and hold harmless Tenant and its
Agents against and from any and all claims, liabilities, judgments, costs,
demands, causes of action and expenses (including, without limitation,
reasonable attorneys' fees) arising from the gross negligence or willful
misconduct of Landlord. If any action or proceeding is brought against Tenant by
reason of any such claim, upon notice from Tenant, Landlord shall defend the
same at Landlord's expense by counsel reasonably satisfactory to Tenant. The
obligations of Landlord under this Paragraph 16(b) shall survive any termination
of this Lease.
(c) NO IMPAIRMENT OF INSURANCE. The foregoing indemnity shall not relieve
any insurance carrier of its obligations under any policies required to be
carried by
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either party pursuant to this Lease, to the extent that such policies cover the
peril or occurrence that results in the claim that is subject to the foregoing
indemnity.
17. SUBROGATION
Landlord and Tenant hereby mutually waive any claim against the other and
its Agents for any loss or damage to any of their property located on or about
the Premises, the Building or the Project that is caused by or results from
perils covered by property insurance carried by the respective parties, to the
extent of the proceeds of such insurance actually received with respect to such
loss or damage, whether or not due to the negligence of the other party or its
Agents. Because the foregoing waivers will preclude the assignment of any claim
by way of subrogation to an insurance company or any other person, each party
now agrees to immediately give to its insurer written notice of the terms of
these mutual waivers and shall have their insurance policies endorsed to prevent
the invalidation of the insurance coverage because of these waivers. Nothing in
this Paragraph 17 shall relieve a party of liability to the other for failure to
carry insurance required by this Lease.
18. SIGNS
Tenant shall not place or permit to be placed in, upon, or about the
Premises, the Building or the Project any exterior lights, decorations,
balloons, flags, pennants, banners, advertisements or notices, or erect or
install any signs, windows or door lettering, placards, decorations, or
advertising media of any type which can be viewed from the exterior the Premises
without obtaining Landlord's prior written consent (which shall not be
unreasonably withheld or delayed beyond thirty (30) days following Tenant's
written request therefor and Tenant's delivery to Landlord of drawings and
specifications and other information requested by Landlord) or without complying
with Landlord's signage criteria, as the same may be modified by Landlord from
time to time, and with all applicable Laws, and will not conduct, or permit to
be conducted, any sale by auction on the Premises or otherwise on the Project.
Tenant shall remove any sign, advertisement or notice placed on the Premises,
the Building or the Project by Tenant upon the expiration of the Term or sooner
termination of this Lease, and Tenant shall repair any damage or injury to the
Premises, the Building or the Project caused thereby, all at Tenant's expense.
If any signs are not removed, or necessary repairs not made, Landlord shall have
the right to remove the signs and repair any damage or injury to the Premises,
the Building or the Project at Tenant's sole cost and expense.
19. FREE FROM LIENS
Tenant shall keep the Premises, the Building and the Project free from any
liens arising out of any work performed, material furnished or obligations
incurred by or for Tenant. In the event that Tenant shall not, within ten (10)
days following the imposition of any such lien, cause the lien to be released of
record by payment
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or posting of a proper bond, Landlord shall have in addition to all other
remedies provided herein and by law the right but not the obligation to cause
same to be released by such means as it shall deem proper, including payment of
the claim giving rise to such lien. All such sums paid by Landlord and all
expenses incurred by it in connection therewith (including, without limitation,
attorneys' fees) shall be payable to Landlord by Tenant upon demand. Landlord
shall have the right at all times to post and keep posted on the Premises any
notices permitted or required by law or that Landlord shall deem proper for the
protection of Landlord, the Premises, the Building and the Project, from
mechanics' and materialmen's liens. Tenant shall give to Landlord at least five
(5) business days' prior written notice of commencement of any repair or
construction on the Premises.
20. ENTRY BY LANDLORD
Tenant shall permit Landlord and Landlord's Agents to enter into and upon
the Premises at all reasonable times, upon reasonable notice (except in the case
of an emergency, for which no notice shall be required), and subject to Tenant's
reasonable security arrangements, for the purpose of inspecting the same or
showing the Premises to prospective purchasers, lenders or, during the last
twelve (12) months of the Term, tenants, or to alter, improve, maintain and
repair the Premises or the Building as required or permitted of Landlord under
the terms hereof, or for any other business purpose, without any rebate of Rent
and without any liability to Tenant for any loss of occupation or quiet
enjoyment of the Premises thereby occasioned (except for actual damages
resulting from the sole active gross negligence or willful misconduct of
Landlord); and Tenant shall permit Landlord to post notices of
non-responsibility and ordinary "for sale" or, during the last twelve (12)
months of the Term, "for lease," signs. No such entry shall be construed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction
of Tenant from the Premises. Landlord may temporarily close entrances, doors,
corridors, elevators or other facilities without liability to Tenant by reason
of such closure in the case of an emergency and when Landlord otherwise deems
such closure necessary.
21. DESTRUCTION AND DAMAGE
(a) If the Premises are damaged by fire or other perils covered by extended
coverage insurance, Landlord shall, at Landlord's option:
(1) In the event of total destruction (which shall mean destruction or
damage in excess of twenty-five percent (25%) of the full insurable value
thereof) of the Premises, elect either to commence promptly to repair and
restore the Premises and prosecute the same diligently to completion, in which
event this Lease shall remain in full force and effect; or not to repair or
restore the Premises, in which event this Lease shall terminate. Landlord shall
give Tenant written notice of its intention within sixty (60) days after the
date (the "CASUALTY DISCOVERY DATE") Landlord obtains actual knowledge of such
destruction. If Landlord elects not to
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restore the Premises, this Lease shall be deemed to have terminated as of the
date of such total destruction.
(2) In the event of a partial destruction (which shall mean
destruction or damage to an extent not exceeding twenty-five percent (25%) of
the full insurable value thereof) of the Premises for which Landlord will
receive insurance proceeds sufficient to cover the cost to repair and restore
such partial destruction and, if the damage thereto is such that the Premises
may be substantially repaired or restored to its condition existing immediately
prior to such damage or destruction within one hundred eighty (180) days from
the Casualty Discovery Date, Landlord shall commence and proceed diligently with
the work of repair and restoration, in which event the Lease shall continue in
full force and effect. If such repair and restoration requires longer than one
hundred eighty (180) days or if the insurance proceeds therefor (plus any
amounts Tenant may elect or is obligated to contribute) are not sufficient to
cover the cost of such repair and restoration, Landlord may elect either to so
repair and restore, in which event the Lease shall continue in full force and
effect, or not to repair or restore, in which event the Lease shall terminate.
In either case, Landlord shall give written notice to Tenant of its intention
within sixty (60) days after the Casualty Discovery Date. If Landlord elects not
to restore the Premises, this Lease shall be deemed to have terminated as of the
date of such partial destruction.
(3) Notwithstanding anything to the contrary contained in this
Paragraph, in the event of damage to the Premises occurring during the last
twelve (12) months of the Term, Landlord and Tenant may each elect to terminate
this Lease by written notice of such election given to the other within thirty
(30) days after the Casualty Discovery Date; provided, however, that Tenant
shall have the right to terminate this Lease under this Paragraph 21(a)(3) only
if its use of the Premises is materially disrupted as a result of such damage.
(b) If the Premises are damaged by any peril not covered by extended
coverage insurance, and the cost to repair such damage exceeds any amount Tenant
may agree to contribute, Landlord may elect either to commence promptly to
repair and restore the Premises and prosecute the same diligently to completion,
in which event this Lease shall remain in full force and effect; or not to
repair or restore the Premises, in which event this Lease shall terminate.
Landlord shall give Tenant written notice of its intention within sixty (60)
days after the Casualty Discovery Date. If Landlord elects not to restore the
Premises, this Lease shall be deemed to have terminated as of the date on which
Tenant surrenders possession of the Premises to Landlord, except that if the
damage to the Premises materially impairs Tenant's ability to continue its
business operations in the Premises, then this Lease shall be deemed to have
terminated as of the date such damage occurred.
(c) Notwithstanding anything to the contrary in this Paragraph 21, Landlord
shall have the option to terminate this Lease, exercisable by notice to Tenant
within
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sixty (60) days after the Casualty Discovery Date, in each of the following
instances:
(1) If more than twenty-five percent (25%) of the full insurable value
of the Building or the Project is damaged or destroyed, regardless of whether or
not the Premises are destroyed.
(2) If the Building or the Project or any portion thereof is damaged
or destroyed and the repair and restoration of such damage requires longer than
one hundred eighty (180) days from the Casualty Discovery Date.
(3) If the Building or the Project or any portion thereof is damaged
or destroyed and the insurance proceeds therefor are not sufficient to cover the
costs of repair and restoration.
(4) If the Building or the Project or any portion thereof is damaged
or destroyed during the last twelve (12) months of the Term.
(d) If the Premises is damaged or destroyed to the extent that the Premises
cannot be fully repaired or restored by Landlord within two hundred seventy
(270) days after the Casualty Discovery Date, Tenant may terminate this Lease
immediately upon notice thereof to Landlord, which notice shall be given, if at
all, not later than ten (10) days after Landlord notifies Tenant of Landlord's
estimate of the period of time required to repair such damage or destruction.
(e) In the event of repair and restoration as herein provided, the monthly
installments of Base Rent shall be abated proportionately in the ratio which
Tenant's use of the Premises is impaired during the period of such repair or
restoration, but only to the extent of rental abatement insurance proceeds
received by Landlord; provided, however, that Tenant shall not be entitled to
such abatement to the extent that such damage or destruction resulted from the
acts or inaction of Tenant or Tenant's Agents. Except as expressly provided in
the immediately preceding sentence with respect to abatement of Base Rent,
Tenant shall have no claim against Landlord for, and hereby releases Landlord
and Landlord's Agents from responsibility for and waives its entire claim of
recovery for any cost, loss or expense suffered or incurred by Tenant as a
result of any damage to or destruction of the Premises, the Building or the
Project or the repair or restoration thereof, including, without limitation, any
cost, loss or expense resulting from any loss of use of the whole or any part of
the Premises, the Building or the Project and/or any inconvenience or annoyance
occasioned by such damage, repair or restoration.
(f) If Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall repair or restore only the initial tenant improvements,
if any, constructed by Landlord in the Premises pursuant to the terms of this
Lease, substantially to their condition existing immediately prior to the
occurrence of the damage or destruction; and Tenant shall promptly repair and
restore, at Tenant's
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expense, Tenant's Alterations (to the extent required for the ordinary course of
Tenant's business) which were not constructed by Landlord.
(g) Tenant hereby waives the provisions of California Civil Code Section
1932(2) and Section 1933(4) which permit termination of a lease upon destruction
of the leased premises, and the provisions of any similar law now or hereinafter
in effect, and the provisions of this Paragraph 21 shall govern exclusively in
case of such destruction.
22. CONDEMNATION
(a) If twenty-five percent (25%) or more of either the Premises, the
Building or the Project or the parking areas for the Building or the Project is
taken for any public or quasi-public purpose by any lawful governmental power or
authority, by exercise of the right of appropriation, inverse condemnation,
condemnation or eminent domain, or sold to prevent such taking (each such event
being referred to as a "CONDEMNATION"), Landlord may, at its option, terminate
this Lease as of the date title vests in the condemning party. If twenty-five
percent (25%) or more of the Premises are taken and if the Premises remaining
after such Condemnation and any repairs by Landlord would be untenantable for
the conduct of Tenant's business operations, Tenant shall have the right to
terminate this Lease as of the date title vests in the condemning party. In
addition to the foregoing, if a sufficient number of parking spaces in the
Parking Areas are taken by Condemnation such that Landlord is compelled to
reduce Tenant's allocation of parking spaces under Paragraph 2 above to fewer
than fourteen (14) spaces (the "MINIMUM PARKING ALLOCATION"), and if as a result
of such reduction it would no longer be practical for Tenant to conduct its
business operations in the Premises, then Tenant shall have the right to
terminate this Lease by written notice to Landlord given not later than thirty
(30) days after Landlord notifies Tenant of such reduction in parking spaces;
provided, however, that Tenant shall have no right to terminate this Lease under
the aforesaid clause if Landlord is able to provide Tenant with a sufficient
number of parking spaces in a location reasonably proximate to the Project (the
"ALTERNATE PARKING SPACES") such that the sum of the parking spaces allocated to
Tenant in the Project's Parking Areas and the Alternate Parking Spaces equal or
exceed the Minimum Parking Allocation. Except as provided in the immediately
preceding sentence, if either party elects to terminate this Lease as provided
herein, such election shall be made by written notice to the other party given
within thirty (30) days after the nature and extent of such Condemnation have
been finally determined. If neither Landlord nor Tenant elects to terminate this
Lease to the extent permitted above, Landlord shall promptly proceed to restore
the Premises, to the extent of any Condemnation award received by Landlord, to
substantially the same condition as existed prior to such Condemnation, allowing
for the reasonable effects of such Condemnation, and a proportionate abatement
shall be made to the Base Rent corresponding to the time during which, and to
the portion of the floor area of the Premises (adjusted for any increase thereto
resulting from any reconstruction) of which, Tenant is deprived on
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account of such Condemnation and restoration, as reasonably determined by
Landlord. Except as expressly provided in the immediately preceding sentence
with respect to abatement of Base Rent, Tenant shall have no claim against
Landlord for, and hereby releases Landlord and Landlord's Agents from
responsibility for and waives its entire claim of recovery for any cost, loss or
expense suffered or incurred by Tenant as a result of any Condemnation or the
repair or restoration of the Premises, the Building or the Project or the
parking areas for the Building or the Project following such Condemnation,
including, without limitation, any cost, loss or expense resulting from any loss
of use of the whole or any part of the Premises, the Building, the Project or
the parking areas and/or any inconvenience or annoyance occasioned by such
Condemnation, repair or restoration. The provisions of California Code of Civil
Procedure Section 1265.130, which allows either party to petition the Superior
Court to terminate the Lease in the event of a partial taking of the Premises,
the Building or the Project or the parking areas for the Building or the
Project, and any other applicable law now or hereafter enacted, are hereby
waived by Tenant.
(b) Landlord shall be entitled to any and all compensation, damages,
income, rent, awards, or any interest therein whatsoever which may be paid or
made in connection with any Condemnation, and Tenant shall have no claim against
Landlord for the value of any unexpired term of this Lease or otherwise;
provided, however, that Tenant shall be entitled to receive any award separately
allocated by the condemning authority to Tenant for Tenant's relocation expenses
or the value of Tenant's Property (specifically excluding fixtures, Alterations
and other components of the Premises which under this Lease or by law are or at
the expiration of the Term will become the property of Landlord), provided that
such award does not reduce any award otherwise allocable or payable to Landlord.
23. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not voluntarily or by operation of law, (1) mortgage,
pledge, hypothecate or encumber this Lease or any interest herein, (2) assign or
transfer this Lease or any interest herein, sublease the Premises or any part
thereof, or any right or privilege appurtenant thereto, or allow any other
person (the employees and invitees of Tenant excepted) to occupy or use the
Premises, or any portion thereof, without first obtaining the written consent of
Landlord, which consent shall not be withheld unreasonably provided that (i)
Tenant is not then in Default under this Lease nor is any event then occurring
which with the giving of notice or the passage of time, or both, would
constitute a Default hereunder, and (ii) Tenant has not previously assigned or
transferred this Lease or any interest herein or subleased the Premises or any
part thereof. When Tenant desires Landlord's consent to such assignment or
subletting, it shall notify Landlord of such request in writing (a "REQUEST
NOTICE") and shall provide to Landlord in the Request Notice the name and
address of the proposed assignee or subtenant and the nature and character of
the business of the proposed assignee or subtenant and shall provide current and
prior financial statements for the proposed assignee or subtenant prepared in
accordance
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with generally accepted accounting principles. Tenant shall also provide
Landlord with a copy of the proposed sublease or assignment agreement, including
all material terms and conditions thereof. Landlord shall have the option, to be
exercised within thirty (30) days of receipt of the foregoing, to (1) terminate
this Lease as of the commencement date stated in the proposed sublease or
assignment, (2) sublease or take an assignment, as the case may be, from Tenant
of the interest, or any portion thereof, in this Lease and/or the Premises that
Tenant proposes to assign or sublease, on the same terms and conditions as
stated in the proposed sublet or assignment agreement, (3) consent to the
proposed assignment or sublease, or (4) refuse its consent to the proposed
assignment or sublease, providing that such consent shall not be unreasonably
withheld so long as Tenant is not then in Default under this Lease nor is any
event then occurring which with the giving of notice or the passage of time, or
both, would constitute a Default hereunder. Notwithstanding the foregoing, in
the event Landlord elects to terminate this Lease or enter into a sublease or
assignment with Tenant as provided in the foregoing clauses (1) and (2),
respectively, then Tenant shall have ten (10) days to rescind its Request Notice
by delivery to Landlord of a notice of rescission (a "RESCISSION NOTICE"). If
Tenant fails to deliver a Rescission Notice to Landlord in a timely manner as
provided herein, then in addition to terminating this Lease or entering into a
sublease or assignment with Tenant, as the case may be, Landlord shall have the
additional right to negotiate directly with Tenant's proposed assignee or
subtenant and to enter into a direct lease or occupancy agreement with such
party on such terms as shall be acceptable to Landlord in its sole and absolute
discretion, and Tenant hereby waives any claims against Landlord related
thereto, including, without limitation, any claims for any compensation or
profit related to such lease or occupancy agreement.
(b) Without otherwise limiting the criteria upon which Landlord may
withhold its consent, Landlord shall be entitled to consider all reasonable
criteria including, but not limited to, the following: (1) whether or not the
proposed subtenant or assignee is engaged in a business which, and the use of
the Premises will be in an manner which, is in keeping with the then character
and nature of all other tenancies in the Project, (2) whether the use to be made
of the Premises by the proposed subtenant or assignee will conflict with any
so-called "exclusive" use then in favor of any other tenant of the Building or
the Project, and whether such use would be prohibited by any other portion of
this Lease, including, but not limited to, any rules and regulations then in
effect, or under applicable Laws, and whether such use imposes a greater load
upon the Premises and the Building and Project services then imposed by Tenant,
(3) the business reputation of the proposed individuals who will be managing and
operating the business operations of the assignee or subtenant, and the
long-term financial and competitive business prospects of the proposed assignee
or subtenant, and (4) the creditworthiness and financial stability of the
proposed assignee or subtenant in light of the responsibilities involved. In any
event, Landlord may withhold its consent to any assignment or sublease, if (i)
the actual use proposed to be conducted in the Premises or portion thereof
conflicts with the provisions of Paragraph 9(a) or (b)
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above or with any other lease which restricts the use to which any space in the
Building or the Project may be put, or (ii) the proposed assignment or sublease
requires alterations, improvements or additions to the Premises or portions
thereof.
(c) If Landlord approves an assignment or subletting as herein provided,
Tenant shall pay to Landlord, as Additional Rent, the difference, if any,
between (1) the Base Rent plus Additional Rent allocable to that part of the
Premises affected by such assignment or sublease pursuant to the provisions of
this Lease, and (2) the rent and any additional rent payable by the assignee or
sublessee to Tenant, less reasonable and customary market-based leasing
commissions and reasonable attorneys' fees, if any, incurred by Tenant in
connection with such assignment or sublease. The assignment or sublease
agreement, as the case may be, after approval by Landlord, shall not be amended
without Landlord's prior written consent, and shall contain a provision
directing the assignee or subtenant to pay the rent and other sums due
thereunder directly to Landlord upon receiving written notice from Landlord that
Tenant is in default under this Lease with respect to the payment of Rent. In
the event that, notwithstanding the giving of such notice, Tenant collects any
rent or other sums from the assignee or subtenant, then Tenant shall hold such
sums in trust for the benefit of Landlord and shall immediately forward the same
to Landlord. Landlord's collection of such rent and other sums shall not
constitute an acceptance by Landlord of attornment by such assignee or
subtenant. A consent to one assignment, subletting, occupation or use shall not
be deemed to be a consent to any other or subsequent assignment, subletting,
occupation or use, and consent to any assignment or subletting shall in no way
relieve Tenant of any liability under this Lease. Any assignment or subletting
without Landlord's consent shall be void, and shall, at the option of Landlord,
constitute a Default under this Lease.
(d) Notwithstanding any assignment or subletting, Tenant shall at all times
remain fully responsible and liable for the payment of the Rent and for
compliance with all of Tenant's other obligations under this Lease (regardless
of whether Landlord's approval has been obtained for any such assignment or
subletting).
(e) Tenant shall pay Landlord's reasonable fees (including, without
limitation, the fees of Landlord's counsel, not to exceed $1,500.00), incurred
in connection with Landlord's review and processing of documents regarding any
proposed assignment or sublease.
(f) Notwithstanding anything in this Lease to the contrary, in the event
Landlord consents to an assignment or subletting by Tenant in accordance with
the terms of this Paragraph 23, Tenant's assignee or subtenant shall have no
right to further assign this Lease or any interest therein or thereunder or to
further sublease all or any portion of the Premises. In furtherance of the
foregoing, Tenant acknowledges and agrees on behalf of itself and any assignee
or subtenant claiming under it (and any such assignee or subtenant by accepting
such assignment or
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sublease shall be deemed to acknowledge and agree) that no sub-subleases or
further assignments of this Lease shall be permitted at any time.
(g) Tenant acknowledges and agrees that the restrictions, conditions and
limitations imposed by this Paragraph 23 on Tenant's ability to assign or
transfer this Lease or any interest herein, to sublet the Premises or any part
thereof, to transfer or assign any right or privilege appurtenant to the
Premises, or to allow any other person to occupy or use the Premises or any
portion thereof, are, for the purposes of California Civil Code Section 1951.4,
as amended from time to time, and for all other purposes, reasonable at the time
that the Lease was entered into, and shall be deemed to be reasonable at the
time that Tenant seeks to assign or transfer this Lease or any interest herein,
to sublet the Premises or any part thereof, to transfer or assign any right or
privilege appurtenant to the Premises, or to allow any other person to occupy or
use the Premises or any portion thereof.
24. TENANT'S DEFAULT
The occurrence of any one of the following events shall constitute an event
of default on the part of Tenant ("DEFAULT"):
(a) The vacation or abandonment of the Premises by Tenant for a period of
ten (10) consecutive days or any vacation or abandonment of the Premises by
Tenant which would cause any insurance policy to be invalidated or otherwise
lapse, or the failure of Tenant to continuously operate Tenant's business in the
Premises, in each of the foregoing cases irrespective of whether or not Tenant
is then in monetary default under this Lease. Tenant agrees to notice and
service of notice as provided for in this Lease and waives any right to any
other or further notice or service of notice which Tenant may have under any
statute or law now or hereafter in effect;
(b) Failure to pay any installment of Rent or any other monies due and
payable hereunder, said failure continuing for a period of five (5) days after
the same is due;
(c) A general assignment by Tenant or any guarantor or surety of Tenant's
obligations hereunder (collectively, "GUARANTOR") for the benefit of creditors;
(d) The filing of a voluntary petition in bankruptcy by Tenant or any
Guarantor, the filing by Tenant or any Guarantor of a voluntary petition for an
arrangement, the filing by or against Tenant or any Guarantor of a petition,
voluntary or involuntary, for reorganization, or the filing of an involuntary
petition by the creditors of Tenant or any Guarantor, said involuntary petition
remaining undischarged for a period of sixty (60) days;
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(e) Receivership, attachment, or other judicial seizure of substantially
all of Tenant's assets on the Premises, such attachment or other seizure
remaining undismissed or undischarged for a period of sixty (60) days after the
levy thereof;
(f) Death or disability of Tenant or any Guarantor, if Tenant or such
Guarantor is a natural person, or the failure by Tenant or any Guarantor to
maintain its legal existence, if Tenant or such Guarantor is a corporation,
partnership, limited liability company, trust or other legal entity;
(g) Failure of Tenant to execute and deliver to Landlord any estoppel
certificate, subordination agreement, or lease amendment within the time periods
and in the manner required by Paragraphs 30 or 31 or 42;
(h) An assignment or sublease, or attempted assignment or sublease, of this
Lease or the Premises by Tenant contrary to the provision of Paragraph 23,
unless such assignment or sublease is expressly conditioned upon Tenant having
received Landlord's consent thereto;
(i) Failure of Tenant to restore the Letter of Credit to the amount and
within the time period provided in Paragraph 7, above;
(j) Failure in the performance of any of Tenant's covenants, agreements or
obligations hereunder (except those failures specified as events of Default in
subparagraphs (b), (l) or (m) above or any other subparagraphs of this Paragraph
24, which shall be governed by such other Paragraphs), which failure continues
for ten (10) days after written notice thereof from Landlord to Tenant, provided
that, if Tenant has exercised reasonable diligence to cure such failure and such
failure cannot be cured within such ten (10) day period despite reasonable
diligence, Tenant shall not be in default under this subparagraph so long as
Tenant thereafter diligently and continuously prosecutes the cure to completion
and actually completes such cure within thirty (30) days after the giving of the
aforesaid written notice;
(k) Chronic delinquency by Tenant in the payment of Rent, or any other
periodic payments required to be paid by Tenant under this Lease. "CHRONIC
DELINQUENCY" shall mean failure by Tenant to pay Rent, or any other payments
required to be paid by Tenant under this Lease within five (5) days after
written notice thereof for any three (3) months (consecutive or nonconsecutive)
during any period of twelve (12) months. In the event of a Chronic Delinquency,
in addition to Landlord's other remedies for Default provided in this Lease, at
Landlord's option, Landlord shall have the right to require that Rent be paid by
Tenant quarterly, in advance;
(l) Chronic overuse by Tenant or Tenant's Agents of the number of
undesignated parking spaces set forth in the Basic Lease Information. "CHRONIC
OVERUSE" shall mean use by Tenant or Tenant's Agents of a number of parking
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spaces greater than the number of parking spaces set forth in the Basic Lease
Information more than three (3) times during the Term after written notice by
Landlord;
(m) Any insurance required to be maintained by Tenant pursuant to this
Lease shall be canceled or terminated or shall expire or be reduced or
materially changed, except as permitted in this Lease; and
(n) Any failure by Tenant to discharge any lien or encumbrance placed on
the Project or any part thereof in violation of this Lease within ten (10) days
after the date such lien or encumbrance is filed or recorded against the Project
or any part thereof.
Tenant agrees that any notice given by Landlord pursuant to Paragraph
24(j), (k) or (l) above shall satisfy the requirements for notice under
California Code of Civil Procedure Section 1161, and Landlord shall not be
required to give any additional notice in order to be entitled to commence an
unlawful detainer proceeding.
25. LANDLORD'S REMEDIES
(a) TERMINATION. In the event of any Default by Tenant, then in addition to
any other remedies available to Landlord at law or in equity and under this
Lease, Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder by giving written notice of such intention to
terminate. In the event that Landlord shall elect to so terminate this Lease
then Landlord may recover from Tenant:
(1) the worth at the time of award of any unpaid Rent and any other
sums due and payable which have been earned at the time of such termination;
plus
(2) the worth at the time of award of the amount by which the unpaid
Rent and any other sums due and payable which would have been earned after
termination until the time of award exceeds the amount of such rental loss
Tenant proves could have been reasonably avoided; plus
(3) the worth at the time of award of the amount by which the unpaid
Rent and any other sums due and payable for the balance of the term of this
Lease after the time of award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; plus
(4) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course would be likely to result
therefrom, including, without limitation, (A) any costs or expenses incurred by
Landlord (1) in retaking possession of the Premises; (2) in maintaining,
repairing, preserving,
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restoring, replacing, cleaning, altering, remodeling or rehabilitating the
Premises or any affected portions of the Building or the Project, including such
actions undertaken in connection with the reletting or attempted reletting of
the Premises to a new tenant or tenants; (3) for leasing commissions,
advertising costs and other expenses of reletting the Premises; or (4) in
carrying the Premises, including taxes, insurance premiums, utilities and
security precautions; (B) any unearned brokerage commissions paid in connection
with this Lease; (C) reimbursement of any previously waived or abated Base Rent
or Additional Rent or any free rent or reduced rental rate granted hereunder;
and (D) any concession made or paid by Landlord to the benefit of Tenant in
consideration of this Lease including, but not limited to, any moving
allowances, contributions, payments or loans by Landlord for tenant improvements
or build-out allowances (including without limitation, any unamortized portion
of the Tenant Improvement Allowance (such Tenant Improvement Allowance to be
amortized over the Term in the manner reasonably determined by Landlord), if
any, and any outstanding balance (principal and accrued interest) of the Tenant
Improvement Loan, if any), or assumptions by Landlord of any of Tenant's
previous lease obligations; plus
(5) such reasonable attorneys' fees incurred by Landlord as a result
of a Default, and costs in the event suit is filed by Landlord to enforce such
remedy; and plus
(6) at Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by applicable law.
As used in subparagraphs (1) and (2) above, the "worth at the time of award" is
computed by allowing interest at an annual rate equal to twelve percent (12%)
per annum or the maximum rate permitted by law, whichever is less. As used in
subparagraph (3) above, the "worth at the time of award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award, plus one percent (1%). Tenant waives redemption
or relief from forfeiture under California Code of Civil Procedure Sections 1174
and 1179, or under any other pertinent present or future Law, in the event
Tenant is evicted or Landlord takes possession of the Premises by reason of any
Default of Tenant hereunder.
(b) CONTINUATION OF LEASE. In the event of any Default by Tenant, then in
addition to any other remedies available to Landlord at law or in equity and
under this Lease, Landlord shall have the remedy described in California Civil
Code Section 1951.4 (Landlord may continue this Lease in effect after Tenant's
Default and abandonment and recover Rent as it becomes due, provided Tenant has
the right to sublet or assign, subject only to reasonable limitations). In
addition, Landlord shall not be liable in any way whatsoever for its failure or
refusal to relet the Premises. For purposes of this Paragraph 25(b), the
following acts by Landlord will not constitute the termination of Tenant's right
to possession of the Premises:
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(1) Acts of maintenance or preservation or efforts to relet the
Premises, including, but not limited to, alterations, remodeling, redecorating,
repairs, replacements and/or painting as Landlord shall consider advisable for
the purpose of reletting the Premises or any part thereof; or
(2) The appointment of a receiver upon the initiative of Landlord to
protect Landlord's interest under this Lease or in the Premises.
(c) RE-ENTRY. In the event of any Default by Tenant, Landlord shall also
have the right, with or without terminating this Lease, in compliance with
applicable law, to re-enter the Premises and remove all persons and property
from the Premises; such property may be removed and stored in a public warehouse
or elsewhere at the cost of and for the account of Tenant.
(d) RELETTING. In the event of the abandonment of the Premises by Tenant or
in the event that Landlord shall elect to re-enter as provided in Paragraph
25(c) or shall take possession of the Premises pursuant to legal proceeding or
pursuant to any notice provided by law, then if Landlord does not elect to
terminate this Lease as provided in Paragraph 25(a), Landlord may from time to
time, without terminating this Lease, relet the Premises or any part thereof for
such term or terms and at such rental or rentals and upon such other terms and
conditions as Landlord in its sole discretion may deem advisable with the right
to make alterations and repairs to the Premises in Landlord's sole discretion.
In the event that Landlord shall elect to so relet, then rentals received by
Landlord from such reletting shall be applied in the following order: (1) to
reasonable attorneys' fees incurred by Landlord as a result of a Default and
costs in the event suit is filed by Landlord to enforce such remedies; (2) to
the payment of any indebtedness other than Rent due hereunder from Tenant to
Landlord; (3) to the payment of any costs of such reletting; (4) to the payment
of the costs of any alterations and repairs to the Premises; (5) to the payment
of Rent due and unpaid hereunder; and (6) the residue, if any, shall be held by
Landlord and applied in payment of future Rent and other sums payable by Tenant
hereunder as the same may become due and payable hereunder. Should that portion
of such rentals received from such reletting during any month, which is applied
to the payment of Rent hereunder, be less than the Rent payable during the month
by Tenant hereunder, then Tenant shall pay such deficiency to Landlord. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in
such reletting or in making such alterations and repairs not covered by the
rentals received from such reletting.
(e) TERMINATION. No re-entry or taking of possession of the Premises by
Landlord pursuant to this Paragraph 25 shall be construed as an election to
terminate this Lease unless a written notice of such intention is given to
Tenant or unless the termination thereof is decreed by a court of competent
jurisdiction. Notwithstanding any reletting without termination by Landlord
because of any
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Default by Tenant, Landlord may at any time after such reletting elect to
terminate this Lease for any such Default.
(f) CUMULATIVE REMEDIES. The remedies herein provided are not exclusive and
Landlord shall have any and all other remedies provided herein or by law or in
equity.
(g) NO SURRENDER. No act or conduct of Landlord, whether consisting of the
acceptance of the keys to the Premises, or otherwise, shall be deemed to be or
constitute an acceptance of the surrender of the Premises by Tenant prior to the
expiration of the Term, and such acceptance by Landlord of surrender by Tenant
shall only flow from and must be evidenced by a written acknowledgment of
acceptance of surrender signed by Landlord. The surrender of this Lease by
Tenant, voluntarily or otherwise, shall not work a merger unless Landlord elects
in writing that such merger take place, but shall operate as an assignment to
Landlord of any and all existing subleases, or Landlord may, at its option,
elect in writing to treat such surrender as a merger terminating Tenant's estate
under this Lease, and thereupon Landlord may terminate any or all such subleases
by notifying the sublessee of its election so to do within five (5) days after
such surrender.
26. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
(a) Without limiting the rights and remedies of Landlord contained in
Paragraph 25 above, if Tenant shall be in Default in the performance of any of
the terms, provisions, covenants or conditions to be performed or complied with
by Tenant pursuant to this Lease, then Landlord may at Landlord's option,
without any obligation to do so, and without notice to Tenant perform any such
term, provision, covenant, or condition, or make any such payment and Landlord
by reason of so doing shall not be liable or responsible for any loss or damage
thereby sustained by Tenant or anyone holding under or through Tenant or any of
Tenant's Agents.
(b) Without limiting the rights of Landlord under Paragraph 26(a) above,
Landlord shall have the right at Landlord's option, without any obligation to
do so, to perform any of Tenant's covenants or obligations under this Lease
without notice to Tenant in the case of an emergency, as determined by Landlord
in its sole and absolute judgment, or if Landlord otherwise determines in its
sole discretion that such performance is necessary or desirable for the proper
management and operation of the Building or the Project or for the preservation
of the rights and interests or safety of other tenants of the Building or the
Project.
(c) If Landlord performs any of Tenant's obligations hereunder in
accordance with this Paragraph 26, the full amount of the cost and expense
incurred or the payment so made or the amount of the loss so sustained shall
immediately be owing by Tenant to Landlord, and Tenant shall promptly pay to
Landlord upon demand, as Additional Rent, the full amount thereof with interest
thereon from the
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date of payment by Landlord at the lower of (1) ten percent (10%) per annum, or
(2) the highest rate permitted by applicable law.
27. ATTORNEY'S FEES
(a) If either party hereto fails to perform any of its obligations under
this Lease or if any dispute arises between the parties hereto concerning the
meaning or interpretation of any provision of this Lease, then the defaulting
party or the party not prevailing in such dispute, as the case may be, shall pay
any and all costs and expenses incurred by the other party on account of such
default and/or in enforcing or establishing its rights hereunder, including,
without limitation, court costs and reasonable attorneys' fees and
disbursements. Any such attorneys' fees and other expenses incurred by either
party in enforcing a judgment in its favor under this Lease shall be recoverable
separately from and in addition to any other amount included in such judgment,
and such attorneys' fees obligation is intended to be severable from the other
provisions of this Lease and to survive and not be merged into any such
judgment.
(b) Without limiting the generality of Paragraph 26(a) above, if Landlord
utilizes the services of an attorney for the purpose of collecting any Rent due
and unpaid by Tenant or in connection with any other breach of this Lease by
Tenant, Tenant agrees to pay Landlord actual attorneys' fees as determined by
Landlord for such services, regardless of the fact that no legal action may be
commenced or filed by Landlord.
28. TAXES
Tenant shall be liable for and shall pay, prior to delinquency, all taxes
levied against Tenant's Property. If any Alteration installed by Tenant pursuant
to Paragraph 12 or any of Tenant's Property is assessed and taxed with the
Project or Building, Tenant shall pay such taxes to Landlord within ten (10)
days after delivery to Tenant of a statement therefor.
29. EFFECT OF CONVEYANCE
The term "LANDLORD" as used in this Lease means, from time to time, the
then current owner of the Building or the Project containing the Premises, so
that, in the event of any sale of the Building or the Project, Landlord shall be
and hereby is entirely freed and relieved of all covenants and obligations of
Landlord hereunder arising from and after the date of such sale, and it shall be
deemed and construed, without further agreement between the parties and the
purchaser at any such sale, that the purchaser of the Building or the Project
has assumed and agreed to carry out any and all covenants and obligations of
Landlord hereunder.
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30. TENANT'S ESTOPPEL CERTIFICATE
From time to time, upon written request of Landlord, Tenant shall execute,
acknowledge and deliver to Landlord or its designee, a written certificate
stating (a) the date this Lease was executed, the Commencement Date of the Term
and the date the Term expires; (b) the date Tenant entered into occupancy of the
Premises; (c) the amount of Rent and the date to which such Rent has been paid;
(d) that this Lease is in full force and effect and has not been assigned,
modified, supplemented or amended in any way (or, if assigned, modified,
supplemented or amended, specifying the date and terms of any agreement so
affecting this Lease); (e) that this Lease represents the entire agreement
between the parties with respect to Tenant's right to use and occupy the
Premises (or specifying such other agreements, if any); (f) that all obligations
under this Lease to be performed by Landlord as of the date of such certificate
have been satisfied (or specifying those as to which Tenant claims that Landlord
has yet to perform); (g) that all required contributions by Landlord to Tenant
on account of Tenant's improvements have been received (or stating exceptions
thereto); (h) that on such date there exist no defenses or offsets that Tenant
has against the enforcement of this Lease by Landlord (or stating exceptions
thereto); (i) that no Rent or other sum payable by Tenant hereunder has been
paid more than one (1) month in advance (or stating exceptions thereto); (j)
that security has been deposited with Landlord, stating the original amount
thereof and any increases thereto; and (k) any other factual matters evidencing
the status of this Lease that may be required either by a lender making a loan
to Landlord to be secured by a deed of trust covering the Building or the
Project or by a purchaser of the Building or the Project. Any such certificate
delivered pursuant to this Paragraph 30 may be relied upon by a prospective
purchaser of Landlord's interest or a mortgagee of Landlord's interest or
assignee of any mortgage upon Landlord's interest in the Premises. If Tenant
shall fail to provide such certificate within fifteen (15) days of receipt by
Tenant of a written request by Landlord as herein provided, such failure shall,
at Landlord's election, constitute a Default under this Lease, and Tenant shall
be deemed to have given such certificate as above provided without modification
and shall be deemed to have admitted the accuracy of any information supplied by
Landlord to a prospective purchaser or mortgagee.
31. SUBORDINATION
Landlord shall have the right to cause this Lease to be and remain subject
and subordinate to any and all mortgages, deeds of trust and ground leases, if
any ("ENCUMBRANCES") that are now or may hereafter be executed covering the
Premises, or any renewals, modifications, consolidations, replacements or
extensions thereof, for the full amount of all advances made or to be made
thereunder and without regard to the time or character of such advances,
together with interest thereon and subject to all the terms and provisions
thereof; provided only, that in the event of termination of any such ground
lease or upon the foreclosure of any such mortgage or deed of trust, so long as
Tenant is not in default, the holder thereof ("HOLDER")
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shall agree to recognize Tenant's rights under this Lease as long as Tenant
shall pay the Rent and observe and perform all the provisions of this Lease to
be observed and performed by Tenant. Within ten (10) days after Landlord's
written request, Tenant shall execute, acknowledge and deliver any and all
reasonable documents required by Landlord or the Holder to effectuate such
subordination, provided that such documents provide for the nondisturbance of
Tenant's rights as set forth in the preceding sentence. If Tenant fails to do
so, such failure shall constitute a Default by Tenant under this Lease.
Notwithstanding anything to the contrary set forth in this Paragraph 31, Tenant
hereby attorns and agrees to attorn to any person or entity purchasing or
otherwise acquiring the Premises at any sale or other proceeding or pursuant to
the exercise of any other rights, powers or remedies under such Encumbrance.
32. ENVIRONMENTAL COVENANTS
(a) Prior to executing this Lease, Tenant has completed, executed and
delivered to Landlord a Hazardous Materials Disclosure Certificate ("INITIAL
DISCLOSURE CERTIFICATE"), a fully completed copy of which is attached hereto as
EXHIBIT D and incorporated herein by this reference. Tenant covenants,
represents and warrants to Landlord that the information on the Initial
Disclosure Certificate is true and correct and accurately describes the
Hazardous Materials which will be manufactured, treated, used or stored on or
about the Premises by Tenant or Tenant's Agents. Tenant shall, on each
anniversary of the Commencement Date and at such other times as Tenant desires
to manufacture, treat, use or store on or about the Premises new or additional
Hazardous Materials which were not listed on the Initial Disclosure Certificate,
complete, execute and deliver to Landlord an updated Disclosure Certificate
(each, an "UPDATED DISCLOSURE CERTIFICATE") describing Tenant's then current and
proposed future uses of Hazardous Materials on or about the Premises, which
Updated Disclosure Certificates shall be in the same format as that which is set
forth in EXHIBIT D or in such updated format as Landlord may require from time
to time. Tenant shall deliver an Updated Disclosure Certificate to Landlord not
less than thirty (30) days prior to the date Tenant intends to commence the
manufacture, treatment, use or storage of new or additional Hazardous Materials
on or about the Premises, and Landlord shall have the right to approve or
disapprove such new or additional Hazardous Materials in its sole and absolute
discretion. Tenant shall make no use of Hazardous Materials on or about the
Premises except as described in the Initial Disclosure Certificate or as
otherwise approved by Landlord in writing in accordance with this Paragraph
32(a).
(b) As used in this Lease, the term "HAZARDOUS MATERIALS" shall mean and
include any substance that is or contains (1) any "hazardous substance" as now
or hereafter defined in Section 101(14) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA") (42
U.S.C. Section 9601 et seq.) or any regulations promulgated under CERCLA; (2)
any "hazardous waste" as now or hereafter defined in the Resource Conservation
and Recovery Act, as amended ("RCRA") (42 U.S.C. Section 6901 et seq.) or any
regulations
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promulgated under RCRA; (3) any substance now or hereafter regulated by the
Toxic Substances Control Act, as amended ("TSCA") (15 U.S.C. Section 2601 et
seq.) or any regulations promulgated under TSCA; (4) petroleum, petroleum
by-products, gasoline, diesel fuel, or other petroleum hydrocarbons; (5)
asbestos and asbestos-containing material, in any form, whether friable or
non-friable; (6) polychlorinated biphenyls; (7) lead and lead-containing
materials; or (8) any additional substance, material or waste (A) the presence
of which on or about the Premises (i) requires reporting, investigation or
remediation under any Environmental Laws (as hereinafter defined), (ii) causes
or threatens to cause a nuisance on the Premises or any adjacent area or
property or poses or threatens to pose a hazard to the health or safety of
persons on the Premises or any adjacent area or property, or (iii) which, if it
emanated or migrated from the Premises, could constitute a trespass, or (B)
which is now or is hereafter classified or considered to be hazardous or toxic
under any Environmental Laws.
(c) As used in this Lease, the term "ENVIRONMENTAL LAWS" shall mean and
include (1) CERCLA, RCRA and TSCA; and (2) any other federal, state or local
laws, ordinances, statutes, codes, rules, regulations, orders or decrees now or
hereinafter in effect relating to (A) pollution, (B) the protection or
regulation of human health, natural resources or the environment, (C) the
treatment, storage or disposal of Hazardous Materials, or (D) the emission,
discharge, release or threatened release of Hazardous Materials into the
environment.
(d) Tenant agrees that during its use and occupancy of the Premises it will
(1) not (A) permit Hazardous Materials to be present on or about the Premises
except in a manner and quantity necessary for the ordinary performance of
Tenant's business or (B) release, discharge or dispose of any Hazardous
Materials on, in, at, under, or emanating from, the Premises, the Building or
the Project; provided, however, that Tenant shall have the right to use and
dispose of de minimis amounts of cleaning materials, toner fluids and other
office and janitorial supplies, provided that the same are necessary for the
conduct of Tenant's business operations in the Premises and are used and
disposed of at all times in full compliance with all Environmental Laws; (2)
comply with all Environmental Laws relating to the Premises and the use of
Hazardous Materials on or about the Premises and not engage in or permit others
to engage in any activity at the Premises in violation of any Environmental
Laws; and (3) immediately notify Landlord of (A) any inquiry, test,
investigation or enforcement proceeding by any governmental agency or authority
against Tenant, Landlord or the Premises, Building or Project relating to any
Hazardous Materials or under any Environmental Laws or (B) the occurrence of any
event or existence of any condition that would cause a breach of any of the
covenants set forth in this Paragraph 32.
(e) If Tenant's use of Hazardous Materials on or about the Premises results
in a release, discharge or disposal of Hazardous Materials on, in, at, under, or
emanating from, the Premises, the Building or the Project, Tenant agrees to
investigate, clean up, remove or remediate such Hazardous Materials in full
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compliance with (1) the requirements of (A) all Environmental Laws and (B) any
governmental agency or authority responsible for the enforcement of any
Environmental Laws; and (2) any additional requirements of Landlord that are
reasonably necessary to protect the value of the Premises, the Building or the
Project.
(f) Upon reasonable notice to Tenant, Landlord may inspect the Premises and
surrounding areas for the purpose of determining whether there exists on or
about the Premises any Hazardous Material or other condition or activity that is
in violation of the requirements of this Lease or of any Environmental Laws.
Such inspections may include, but are not limited to, entering the Premises or
adjacent property with drill rigs or other machinery for the purpose of
obtaining laboratory samples. Landlord shall not be limited in the number of
such inspections during the Term of this Lease. In the event (1) such
inspections reveal the presence of any such Hazardous Material or other
condition or activity in violation of the requirements of this Lease or of any
Environmental Laws, or (2) Tenant or its Agents contribute or knowingly consent
to the presence of any Hazardous Materials in, on, under, through or about the
Premises, the Building or the Project or exacerbate the condition of or the
conditions caused by any Hazardous Materials in, on, under, through or about the
Premises, the Building or the Project, Tenant shall reimburse Landlord for the
cost of such inspections within ten (10) days of receipt of a written statement
therefor. Tenant will supply to Landlord such historical and operational
information regarding the Premises and surrounding areas as may be reasonably
requested to facilitate any such inspection and will make available for meetings
appropriate personnel having knowledge of such matters. Tenant agrees to give
Landlord at least sixty (60) days' prior notice of its intention to vacate the
Premises so that Landlord will have an opportunity to perform such an inspection
prior to such vacation. The right granted to Landlord herein to perform
inspections shall not create a duty on Landlord's part to inspect the Premises,
or liability on the part of Landlord for Tenant's use, storage, treatment or
disposal of Hazardous Materials, it being understood that Tenant shall be solely
responsible for all liability in connection therewith.
(g) Landlord shall have the right, but not the obligation, prior or
subsequent to a Default, without in any way limiting Landlord's other rights and
remedies under this Lease, to enter upon the Premises, or to take such other
actions as it deems necessary or advisable, to investigate, clean up, remove or
remediate any Hazardous Materials or contamination by Hazardous Materials
present on, in, at, under, or emanating from, the Premises, the Building or the
Project in violation of Tenant's obligations under this Lease or under any
Environmental Laws. Notwithstanding any other provision of this Lease, Landlord
shall also have the right, at its election, in its own name or as Tenant's
agent, to negotiate, defend, approve and appeal, at Tenant's expense, any action
taken or order issued by any governmental agency or authority with regard to any
such Hazardous Materials or contamination by Hazardous Materials. All costs and
expenses paid or incurred by
41
<PAGE> 49
Landlord in the exercise of the rights set forth in this Paragraph 32 shall be
payable by Tenant upon demand.
(h) Tenant shall surrender the Premises to Landlord upon the expiration or
earlier termination of this Lease free of debris, waste or Hazardous Materials
placed on, about or near the Premises by Tenant or Tenant's Agents and in a
condition which complies with all Environmental Laws and any additional
requirements of Landlord that are reasonably necessary to protect the value of
the Premises, the Building or the Project, including, without limitation, the
obtaining of any closure permits or other governmental permits or approvals
related to Tenant's use of Hazardous Materials in or about the Premises.
Tenant's obligations and liabilities pursuant to the provisions of this
Paragraph 32 shall survive the expiration or earlier termination of this Lease.
If it is determined by Landlord that the condition of all or any portion of the
Premises, the Building, and/or the Project is not in compliance with the
provisions of this Lease with respect to Hazardous Materials, including, without
limitation, all Environmental Laws, at the expiration or earlier termination of
this Lease, then at Landlord's sole option, Landlord may require Tenant to hold
over possession of the Premises until Tenant can surrender the Premises to
Landlord in the condition in which the Premises existed as of the Commencement
Date and prior to the appearance of such Hazardous Materials except for normal
wear and tear, including, without limitation, the conduct or performance of any
closures as required by any Environmental Laws. The burden of proof hereunder
shall be upon Tenant. For purposes hereof, the term "normal wear and tear" shall
not include any deterioration in the condition or diminution of the value of any
portion of the Premises, the Building, and/or the Project in any manner
whatsoever related to directly, or indirectly, Hazardous Materials. Any such
holdover by Tenant will be with Landlord's consent, will not be terminable by
Tenant in any event or circumstance and will otherwise be subject to the
provisions of Paragraph 35 of this Lease.
(i) Tenant agrees to indemnify and hold harmless Landlord from and against
any and all claims, losses (including, without limitation, loss in value of the
Premises, the Building or the Project, liabilities and expenses (including
attorney's fees)) sustained by Landlord attributable to (1) any Hazardous
Materials placed on or about the Premises, the Building or the Project by Tenant
or Tenant's Agents, or (2) Tenant's breach of any provision of this Paragraph
32.
(j) The provisions of this Paragraph 32 shall survive the expiration or
earlier termination of this Lease.
33. NOTICES
All notices and demands which are required or may be permitted to be given
to either party by the other hereunder shall be in writing and shall be sent by
United States mail, postage prepaid, certified, or by personal delivery or
overnight courier, addressed to the addressee at Tenant's Address or Landlord's
Address as specified
42
<PAGE> 50
in the Basic Lease Information, or to such other place as either party may from
time to time designate in a notice to the other party given as provided herein.
Copies of all notices and demands given to Landlord shall additionally be sent
to Landlord's property manager at the address specified in the Basic Lease
Information or at such other address as Landlord may specify in writing from
time to time. Notice shall be deemed given upon actual receipt (or attempted
delivery if delivery is refused ), if personally delivered, or one (1) business
day following deposit with a reputable overnight courier that provides a
receipt, or on the third (3rd) day following deposit in the United States mail
in the manner described above.
34. WAIVER
The waiver of any breach of any term, covenant or condition of this Lease
shall not be deemed to be a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition herein
contained. The subsequent acceptance of Rent by Landlord shall not be deemed to
be a waiver of any preceding breach by Tenant, other than the failure of Tenant
to pay the particular rental so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such Rent. No delay or
omission in the exercise of any right or remedy of Landlord in regard to any
Default by Tenant shall impair such a right or remedy or be construed as a
waiver. Any waiver by Landlord of any Default must be in writing and shall not
be a waiver of any other Default concerning the same or any other provisions of
this Lease.
35. HOLDING OVER
Any holding over after the expiration of the Term, without the express
written consent of Landlord, shall constitute a Default and, without limiting
Landlord's remedies provided in this Lease, such holding over shall be construed
to be a tenancy at sufferance, at a rental rate of one hundred fifty percent
(150%) of the Base Rent last due in this Lease, plus Additional Rent, and shall
otherwise be on the terms and conditions herein specified, so far as applicable;
provided, however, in no event shall any renewal or expansion option or other
similar right or option contained in this Lease be deemed applicable to any such
tenancy at sufferance. If the Premises are not surrendered at the end of the
Term or sooner termination of this Lease, and in accordance with the provisions
of Paragraphs 11 and 32(h), Tenant shall indemnify, defend and hold Landlord
harmless from and against any and all loss or liability resulting from delay by
Tenant in so surrendering the Premises including, without limitation, any loss
or liability resulting from any claim against Landlord made by any succeeding
tenant or prospective tenant founded on or resulting from such delay and losses
to Landlord due to lost opportunities to lease any portion of the Premises to
any such succeeding tenant or prospective tenant, together with, in each case,
actual attorneys' fees and costs.
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<PAGE> 51
36. SUCCESSORS AND ASSIGNS
The terms, covenants and conditions of this Lease shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors, executors,
administrators and assigns of all of the parties hereto. If Tenant shall consist
of more than one entity or person, the obligations of Tenant under this Lease
shall be joint and several.
37. TIME
Time is of the essence of this Lease and each and every term, condition and
provision herein.
38. BROKERS
Landlord and Tenant each represents and warrants to the other that neither
it nor its officers or agents nor anyone acting on its behalf has dealt with any
real estate broker except the Broker(s) specified in the Basic Lease Information
in the negotiating or making of this Lease, and each party agrees to indemnify
and hold harmless the other from any claim or claims, and costs and expenses,
including attorneys' fees, incurred by the indemnified party in conjunction with
any such claim or claims of any other broker or brokers to a commission in
connection with this Lease as a result of the actions of the indemnifying party.
39. LIMITATION OF LIABILITY
Tenant agrees that, in the event of any default or breach by Landlord with
respect to any of the terms of the Lease to be observed and performed by
Landlord (1) Tenant shall look solely to the then-current landlord's interest in
the Building for the satisfaction of Tenant's remedies for the collection of a
judgment (or other judicial process) requiring the payment of money by Landlord;
(2) no other property or assets of Landlord, its partners, shareholders,
officers, directors, employees, investment advisors, or any successor in
interest of any of them (collectively, the "LANDLORD PARTIES") shall be subject
to levy, execution or other enforcement procedure for the satisfaction of
Tenant's remedies; (3) no personal liability shall at any time be asserted or
enforceable against the Landlord Parties; and (4) no judgment will be taken
against the Landlord Parties. The provisions of this section shall apply only to
the Landlord and the parties herein described, and shall not be for the benefit
of any insurer nor any other third party.
40. FINANCIAL STATEMENTS
Within fifteen (15) days after Landlord's request, Tenant shall deliver to
Landlord the then current financial statements of Tenant (including interim
periods following the end of the last fiscal year for which annual statements
are available), prepared or compiled by a certified public accountant, including
a balance sheet
44
<PAGE> 52
and profit and loss statement for the most recent prior year, all prepared in
accordance with generally accepted accounting principles consistently applied.
Landlord shall keep Tenant's financial statements confidential, except that
Landlord shall have the right to disclose such statements to prospective
purchasers and lenders and to Landlord's partners, property managers,
consultants and advisors, including accountants and attorneys, and otherwise as
required by law or legal process.
41. RULES AND REGULATIONS
Tenant agrees to comply with such reasonable rules and regulations as
Landlord may adopt from time to time for the orderly and proper operation of the
Building and the Project. Such rules may include, but shall not be limited, to
restrictions on the location of employee parking. The then current rules and
regulations shall be binding upon Tenant upon delivery of a copy of them to
Tenant. Landlord shall not be responsible to Tenant for the failure of any other
person to observe and abide by any of said rules and regulations. Landlord's
current rules and regulations are attached to this Lease as EXHIBIT C.
42. MORTGAGEE PROTECTION
(a) MODIFICATIONS FOR LENDER. If, in connection with obtaining financing
for the Project or any portion thereof, Landlord's lender shall request
reasonable modifications to this Lease as a condition to such financing, Tenant
shall not unreasonably withhold, delay or defer its consent to such
modifications, provided such modifications do not materially adversely affect
Tenant's rights or increase Tenant's obligations under this Lease.
(b) RIGHTS TO CURE. Tenant agrees to give to any trust deed or mortgage
holder ("HOLDER") of whom Tenant has received notice from Landlord, by
registered mail, at the same time as it is given to Landlord, a copy of any
notice of default given to Landlord, provided that prior to such notice Tenant
has been notified, in writing, (by way of notice of assignment of rents and
leases, or otherwise) of the address of such Holder. Tenant further agrees that
if Landlord shall have failed to cure such default within the time provided for
in this Lease, then the Holder shall have an additional twenty (20) days after
expiration of such period, or after receipt of such notice from Tenant (if such
notice to the Holder is required by this Paragraph 42(b)), whichever shall last
occur within which to cure such default or if such default cannot be cured
within that time, then such additional time as may be necessary if within such
twenty (20) days, any Holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure), in
which event this Lease shall not be terminated.
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<PAGE> 53
43. ENTIRE AGREEMENT
This Lease, including the Exhibits and any Addenda attached hereto, which
are hereby incorporated herein by this reference, contains the entire agreement
of the parties hereto, and no representations, inducements, promises or
agreements, oral or otherwise, between the parties, not embodied herein or
therein, shall be of any force and effect.
44. SUBSTITUTED PREMISES
Landlord shall have the right at any time, upon giving Tenant not less than
thirty (30) days' notice in writing, to provide and furnish Tenant with space
elsewhere in the Project of approximately the same size as the Premises and to
place Tenant in such space, without any increase in Tenant's Base Rent or
Proportionate Share(s) hereunder. In the event of any such relocation of Tenant,
Landlord shall pay for Tenant's reasonable moving costs and the cost of
replacing Tenant's Alterations. Should Tenant refuse to permit Landlord to move
Tenant to such new space by the end of such thirty (30) day period, Tenant shall
be in Default hereunder without further notice or opportunity to cure and
Landlord in such event shall have all rights and remedies provided herein, at
law and in equity, including, without limitation, the right to forthwith cancel
and terminate this Lease. If Landlord moves Tenant to such new space, this Lease
and each and all of its terms, covenants and conditions shall remain in full
force and effect and be deemed applicable to such new space, and such new space
shall thereafter be deemed to be the "PREMISES".
45. INTEREST
Any installment of Rent and any other sum due from Tenant under this Lease
which is not received by Landlord within ten (10) days from when the same is due
shall bear interest from the date such payment was originally due under this
Lease until paid at an annual rate equal to the maximum rate of interest
permitted by law. Payment of such interest shall not excuse or cure any Default
by Tenant. In addition, Tenant shall pay all costs and attorneys' fees incurred
by Landlord in collection of such amounts.
46. CONSTRUCTION
This Lease shall be construed and interpreted in accordance with the laws
of the State of California. The parties acknowledge and agree that no rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall be employed in the interpretation of this Lease, including
the Exhibits and any Addenda attached hereto. All captions in this Lease are for
reference only and shall not be used in the interpretation of this Lease.
Whenever required by the context of this Lease, the singular shall include the
plural, the masculine shall include the feminine, and vice versa. If any
provision of this Lease
46
<PAGE> 54
shall be determined to be illegal or unenforceable, such determination shall not
affect any other provision of this Lease and all such other provisions shall
remain in full force and effect.
47. REPRESENTATIONS AND WARRANTIES OF TENANT
Tenant hereby makes the following representations and warranties, each of
which is material and being relied upon by Landlord, is true in all respects as
of the date of this Lease, and shall survive the expiration or termination of
the Lease.
(a) If Tenant is an entity, Tenant is duly organized, validly existing and
in good standing under the laws of the state of its organization and the persons
executing this Lease on behalf of Tenant have the full right and authority to
execute this Lease on behalf of Tenant and to bind Tenant without the consent or
approval of any other person or entity. Tenant has full power, capacity,
authority and legal right to execute and deliver this Lease and to perform all
of its obligations hereunder. This Lease is a legal, valid and binding
obligation of Tenant, enforceable in accordance with its terms.
(b) Tenant has not (1) made a general assignment for the benefit of
creditors, (2) filed any voluntary petition in bankruptcy or suffered the filing
of an involuntary petition by any creditors, (3) suffered the appointment of a
receiver to take possession of all or substantially all of its assets, (4)
suffered the attachment or other judicial seizure of all or substantially all of
its assets, (5) admitted in writing its inability to pay its debts as they come
due, or (6) made an offer of settlement, extension or composition to its
creditors generally.
48. SECURITY
(a) Tenant acknowledges and agrees that, while Landlord may engage security
personnel to patrol the Building or the Project, Landlord is not providing any
security services with respect to the Premises, the Building or the Project and
that Landlord shall not be liable to Tenant for, and Tenant waives any claim
against Landlord with respect to, any loss by theft or any other damage suffered
or incurred by Tenant in connection with any unauthorized entry into the
Premises or any other breach of security with respect to the Premises, the
Building or the Project.
(b) Tenant hereby agrees to the exercise by Landlord and Landlord's Agents,
within their sole discretion, of such security measures as, but not limited to,
the evacuation of the Premises, the Building or the Project for cause, suspected
cause or for drill purposes, the denial of any access to the Premises, the
Building or the Project and other similarly related actions that it deems
necessary to prevent any threat of property damage or bodily injury. The
exercise of such security measures by Landlord and Landlord's Agents, and the
resulting interruption of service and cessation of Tenant's business, if any,
shall not be deemed an eviction or disturbance of Tenant's use and possession of
the Premises, or any part thereof, or
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<PAGE> 55
render Landlord or Landlord's Agents liable to Tenant for any resulting damages
or relieve Tenant from Tenant's obligations under this Lease.
49. JURY TRIAL WAIVER
Tenant hereby waives any right to trial by jury with respect to any action
or proceeding (i) brought by Landlord, Tenant or any other party, relating to
(A) this Lease and/or any understandings or prior dealings between the parties
hereto, or (B) the Premises, the Building or the Project or any part thereof, or
(ii) to which Landlord is a party. Tenant hereby agrees that this Lease
constitutes a written consent to waiver of trial by jury pursuant to the
provisions of California Code of Civil Procedure Section 631, and Tenant does
hereby constitute and appoint Landlord its true and lawful attorney-in-fact,
which appointment is coupled with an interest, and Tenant does hereby authorize
and empower Landlord, in the name, place and stead of Tenant, to file this Lease
with the clerk or judge of any court of competent jurisdiction as a statutory
written consent to waiver of trial by jury.
Landlord and Tenant have executed and delivered this Lease as of the Lease
Date specified in the Basic Lease Information.
LANDLORD: TENANT:
HARBOR INVESTMENT PARTNERS, COMBICHEM, INC.,
a California general partnership a California corporation
By: Aetna Life Insurance Company,
a Connecticut corporation,
General Partner By: /s/ KARIN EASTHAM
---------------------------
Print Name: Karin Eastham
-------------------
By: Allegis Realty Investors LLC, Its: Vice President Finance/
Its Investment Advisor --------------------------
and Agent Administration
--------------------------
By:
---------------------------
Print Name:
-------------------
By: /s/ CYNTHIA STEVENIN Its:
--------------------------- --------------------------
Cynthia Stevenin
Vice President
48
<PAGE> 56
EXHIBIT A
DIAGRAM OF THE PREMISES
A-1
<PAGE> 57
EXHIBIT B
COMMENCEMENT AND EXPIRATION DATE MEMORANDUM
LANDLORD: HARBOR INVESTMENT PARTNERS
TENANT: COMBICHEM, INC.
LEASE DATE: October 6, 1997
PREMISES: Located at 1804 Embarcadero Road, Suite 201, Palo
Alto, California 94303
Tenant hereby accepts the Premises as being in the condition required under
the Lease, with all Tenant Improvements completed (except for minor punchlist
items which Landlord agrees to complete).
The Commencement Date of the Lease is hereby established
as____________________, 1997 and the Expiration Date is___________________,
_____.
TENANT: COMBICHEM, INC.,
a California corporation
By: ____________________________________
Print Name: ____________________________
Its: ___________________________________
B-1
<PAGE> 58
Approved and Agreed:
LANDLORD:
HARBOR INVESTMENT PARTNERS,
a California general partnership
By: Aetna Life Insurance Company,
a Connecticut corporation,
General Partner
By: Allegis Realty Investors LLC,
Its Investment Advisor
and Agent
By:_________________________________
Cynthia Stevenin
Vice President
B-2
<PAGE> 59
EXHIBIT C
RULES AND REGULATIONS
This exhibit, entitled "Rules and Regulations," is and shall constitute
EXHIBIT C to the Lease Agreement, dated as of the Lease Date, by and between
landlord and Tenant for the Premises. The terms and conditions of this EXHIBIT C
are hereby incorporated into and are made a part of the Lease. Capitalized terms
used, but not otherwise defined, in this EXHIBIT C have the meanings ascribed to
such terms in the Lease.
1. Tenant shall not use any method of heating or air conditioning other
than that supplied by Landlord without the consent of Landlord.
2. All window coverings installed by Tenant and visible from the outside of
the building require the prior written approval of Landlord.
3. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance or any flammable or combustible materials on or around
the Premises, except to the extent that Tenant is permitted to use the same
under the terms of Paragraph 33 of the Lease.
4. Tenant shall not alter any lock or install any new locks or bolts on any
door at the Premises without the prior consent of Landlord.
5. Tenant shall not make any duplicate keys without the prior consent of
Landlord.
6. Tenant shall park motor vehicles in parking areas designated by Landlord
except for loading and unloading. During those periods of loading and unloading,
Tenant shall not unreasonably interfere with traffic flow around the Building or
the Project and loading and unloading areas of other tenants. Tenant shall not
park motor vehicles in designated parking areas after the conclusion of normal
daily business activity.
7. Tenant shall not disturb, solicit or canvas any tenant or other occupant
of the Building or Project and shall cooperate to prevent same.
8. No person shall go on the roof without Landlord's permission.
9. Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of the
Building, to such a degree as to be objectionable to Landlord or other tenants,
shall be placed and maintained by Tenant, at Tenant's expense, on vibration
eliminators or in noise-dampening housing or other devices sufficient to
eliminate noise or vibration.
C-1
<PAGE> 60
10. All goods, including material used to store goods, delivered to the
Premises of Tenant shall be immediately moved into the Premises and shall not be
left in parking or receiving areas overnight.
11. Tractor trailers which must be unhooked or parked with dolly wheels
beyond the concrete loading areas must use steel plates or wood blocks under the
dolly wheels to prevent damage to the asphalt paving surfaces. No parking or
storing of such trailers will be permitted in the auto parking areas of the
Project or on streets adjacent thereto.
12. Forklifts which operate on asphalt paving areas shall not have solid
rubber tires and shall only use tires that do not damage the asphalt.
13. Tenant is responsible for the storage and removal of all trash and
refuse. All such trash and refuse shall be contained in suitable receptacles
stored behind screened enclosures at locations approved by Landlord.
14. Tenant shall not store or permit the storage or placement of goods or
merchandise in or around the common areas surrounding the Premises. No displays
or sales of merchandise shall be allowed in the parking lots or other common
areas.
15. Tenant shall not permit any animals, including but not limited to, any
household pets, to be brought or kept in or about the Premises, the Building,
the Project or any of the common areas.
INITIALS:
TENANT:______________
LANDLORD:____________
C-2
<PAGE> 61
EXHIBIT D
HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord to evaluate your proposed uses of the premises (the "PREMISES")
and to determine whether to enter into a lease agreement with you as tenant. If
a lease agreement is signed by you and the Landlord (the "LEASE AGREEMENT"), on
an annual basis in accordance with the provisions of Paragraph 33 of the Lease
Agreement, you are to provide an update to the information initially provided by
you in this certificate. Any questions regarding this certificate should be
directed to, and when completed, the certificate should be delivered to:
Landlord: Harbor Investment Partners
c/o Allegis Realty Investors LLC
455 Market, Suite 1540
San Francisco, California 94105
Attention: Cynthia Stevenin
Phone: (415) 538-4800
Name of (Prospective) Tenant: CombiChem, Inc.
Mailing Address: __________________________________________________________
___________________________________________________________________________
Contact Person, Title and Telephone Number(s): ____________________________
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):_______________________________________________________
___________________________________________________________________________
Address of (Prospective) Premises: ________________________________________
___________________________________________________________________________
Length of (Prospective) initial Term: _____________________________________
___________________________________________________________________________
D-1
<PAGE> 62
1. GENERAL INFORMATION:
Describe the proposed operations to take place in, on, or about the
Premises, including, without limitation, principal products processed,
manufactured or assembled, and services and activities to be provided or
otherwise conducted. Existing tenants should describe any proposed
changes to on-going operations.
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials (as hereinafter defined) be used,
generated, treated, stored or disposed of in, on or about the
Premises? Existing tenants should describe any Hazardous
Materials which continue to be used, generated, treated, stored
or disposed of in, on or about the Premises.
<TABLE>
<S> <C> <C>
Wastes Yes [ ] No [ ]
Chemical Products Yes [ ] No [ ]
Other Yes [ ] No [ ]
</TABLE>
If Yes is marked, please explain: _______________________________
_________________________________________________________________
_________________________________________________________________
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, treated, stored or disposed of
in, on or about the Premises, including the applicable hazard
class and an estimate of the quantities of such Hazardous
Materials to be present on or about the Premises at any given
time; estimated annual throughput; the proposed location(s) and
method of storage (excluding nominal amounts of ordinary
household cleaners and janitorial supplies which are not
regulated by any Environmental Laws, as hereinafter defined); and
the proposed location(s) and method(s) of treatment or disposal
for each Hazardous Material, including, the estimated frequency,
and the proposed contractors or subcontractors. Existing tenants
should attach a list setting forth the information requested
above and such list should include actual data from on-going
operations and the identification of any variations in such
information from the prior year's certificate.
D-2
<PAGE> 63
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage or treatment of gasoline,
diesel, petroleum, or other Hazardous Materials in tanks or sumps
proposed in, on or about the Premises? Existing tenants should
describe any such actual or proposed activities.
Yes [ ] No [ ]
If yes, please explain: _________________________________________
_________________________________________________________________
_________________________________________________________________
4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator
I.D. Number? Existing tenants should describe any additional
identification numbers issued since the previous certificate.
Yes [ ] No [ ]
4.2 Has your company filed a biennial or quarterly reports as a
hazardous waste generator? Existing tenants should describe any
new reports filed.
Yes [ ] No [ ]
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
<TABLE>
<S> <C>
_____ storm drain? _____ sewer?
_____ surface water? _____ no wastewater or other wastes discharged.
</TABLE>
Existing tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
_________________________________________________________________
_________________________________________________________________
D-3
<PAGE> 64
5.2 Will any such wastewater or waste be treated before discharge?
Yes [ ] No [ ]
If yes, describe the type of treatment proposed to be conducted.
Existing tenants should describe the actual treatment conducted.
_________________________________________________________________
_________________________________________________________________
6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be used
in your company's operations in, on or about the Premises that
will discharge into the air; and will such air emissions be
monitored? Existing tenants should indicate whether or not there
are any such air filtration systems or stacks in use in, on or
about the Premises which discharge into the air and whether such
air emissions are being monitored.
Yes [ ] No [ ]
If yes, please explain: _________________________________________
_________________________________________________________________
_________________________________________________________________
6.2 Do you propose to operate any of the following types of
equipment, or any other equipment requiring an air emissions
permit? Existing tenants should specify any such equipment being
operated in, on or about the Premises.
<TABLE>
<S> <C>
_____ Spray booth(s) _____ Incinerator(s)
_____ Dip tank(s) _____ Other (Please describe)
_____ Drying oven(s) _____ No Equipment Requiring Air Permits
</TABLE>
If yes, please explain: _________________________________________
_________________________________________________________________
_________________________________________________________________
6.3 Please describe (and submit copies of with this Hazardous
Materials Disclosure Certificate) any reports you have filed in
the past [thirty-six] months with any governmental or
quasi-governmental agencies or authorities related to air
discharges or clean air requirements and any such reports which
have been issued during such period by any such agencies or
authorities with respect to you or your business operations.
D-4
<PAGE> 65
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("MANAGEMENT PLAN") or
Hazardous Materials Business Plan and Inventory ("BUSINESS PLAN")
pursuant to Fire Department or other governmental or regulatory
agencies' requirements? Existing tenants should indicate whether
or not a Management Plan is required and has been prepared.
Yes [ ] No [ ]
If yes, attach a copy of the Management Plan or Business Plan.
Existing tenants should attach a copy of any required updates to
the Management Plan or Business Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the
Premises listed or regulated under Proposition 65? Existing
tenants should indicate whether or not there are any new
Hazardous Materials being so used which are listed or regulated
under Proposition 65.
Yes [ ] No [ ]
If yes, please explain: _________________________________________
_________________________________________________________________
_________________________________________________________________
D-5
<PAGE> 66
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has
your company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees or has your company
received requests for information, notice or demand letters, or
any other inquiries regarding its operations? Existing tenants
should indicate whether or not any such actions, orders or
decrees have been, or are in the process of being, undertaken or
if any such requests have been received.
Yes [ ] No [ ]
If yes, describe the actions, orders or decrees and any
continuing compliance obligations imposed as a result of these
actions, orders or decrees and also describe any requests,
notices or demands, and attach a copy of all such documents.
Existing tenants should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not
already delivered to Landlord pursuant to the provisions of
Paragraph 33 of the Lease Agreement.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
8.2 Have there ever been, or are there now pending, any lawsuits
against your company regarding any environmental or health and
safety concerns?
Yes [ ] No [ ]
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and other documents
related thereto as requested by Landlord. Existing tenants should
describe and attach a copy of any new complaint(s),
cross-complaint(s), pleadings and other related documents not
already delivered to Landlord pursuant to the provisions of
Paragraph 33 of the Lease Agreement.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
D-6
<PAGE> 67
8.3 Have there been any problems or complaints from adjacent tenants,
owners or other neighbors at your company's current facility with
regard to environmental or health and safety concerns? Existing
tenants should indicate whether or not there have been any such
problems or complaints from adjacent tenants, owners or other
neighbors at, about or near the Premises and the current status
of any such problems or complaints.
Yes [ ] No [ ]
If yes, please describe. Existing tenants should describe any
such problems or complaints not already disclosed to Landlord
under the provisions of the signed Lease Agreement and the
current status of any such problems or complaints.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
9. PERMITS AND LICENSES
9.1 Attach copies of all permits and licenses issued to your company
with respect to its proposed operations in, on or about the
Premises, including, without limitation, any Hazardous Materials
permits, wastewater discharge permits, air emissions permits, and
use permits or approvals. Existing tenants should attach copies
of any new permits and licenses as well as any renewals of
permits or licenses previously issued.
As used herein, "HAZARDOUS MATERIALS" shall mean and include any substance
that is or contains (a) any "hazardous substance" as now or hereafter defined in
Section 101(14) of the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA") (42 U.S.C. Section 9601 et seq.) or
any regulations promulgated under CERCLA; (b) any "hazardous waste" as now or
hereafter defined in the Resource Conservation and Recovery Act, as amended
("RCRA") (42 U.S.C. Section 6901 et seq.) or any regulations promulgated under
RCRA; (c) any substance now or hereafter regulated by the Toxic Substances
Control Act, as amended ("TSCA") (15 U.S.C. Section 2601 et seq.) or any
regulations promulgated under TSCA; (d) petroleum, petroleum by-products,
gasoline, diesel fuel, or other petroleum hydrocarbons; (e) asbestos and
asbestos-containing material, in any form, whether friable or non-friable; (f)
polychlorinated biphenyls; (g) lead and lead-containing materials; or (h) any
additional substance, material or waste (A) the presence of which on or about
the Premises (i) requires reporting, investigation or remediation under any
Environmental Laws (as hereinafter defined), (ii) causes or threatens to cause a
nuisance on the Premises or any adjacent property or poses or threatens to pose
a hazard to the health or safety of persons on the Premises or any adjacent
property, or (iii) which, if it emanated or migrated from the Premises,
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<PAGE> 68
could constitute a trespass, or (B) which is now or is hereafter classified or
considered to be hazardous or toxic under any Environmental Laws; and
"ENVIRONMENTAL LAWS" shall mean and include (a) CERCLA, RCRA and TSCA; and (b)
any other federal, state or local laws, ordinances, statutes, codes, rules,
regulations, orders or decrees now or hereinafter in effect relating to (i)
pollution, (ii) the protection or regulation of human health, natural resources
or the environment, (iii) the treatment, storage or disposal of Hazardous
Materials, or (iv) the emission, discharge, release or threatened release of
Hazardous Materials into the environment.
The undersigned hereby acknowledges and agrees that this Hazardous
Materials Disclosure Certificate is being delivered to Landlord in connection
with the evaluation of a Lease Agreement and, if such Lease Agreement is
executed, will be attached thereto as an exhibit. The undersigned further
acknowledges and agrees that if such Lease Agreement is executed, this Hazardous
Materials Disclosure Certificate will be updated from time to time in accordance
with Paragraph 33 of the Lease Agreement. The undersigned further acknowledges
and agrees that the Landlord and its partners, lenders and representatives may,
and will, rely upon the statements, representations, warranties, and
certifications made herein and the truthfulness thereof in entering into the
Lease Agreement and the continuance thereof throughout the term, and any
renewals thereof, of the Lease Agreement. I [print name] , acting with full
authority to bind the (proposed) Tenant and on behalf of the (proposed) Tenant,
certify, represent and warrant that the information contained in this
certificate is true and correct.
(PROSPECTIVE) TENANT:
CombiChem, Inc.,
a California corporation
By: ____________________________________
Title: ____________________________________
Date: ____________________________________
INITIALS:
TENANT: ______________
LANDLORD: ______________
D-8
<PAGE> 1
EXHIBIT 10.39
COMBICHEM, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
Amended as of August 10, 1995
Further Amended as of May 9, 1996
Further Amended as of May 8, 1997
ARTICLE I
GENERAL PROVISIONS
1. PURPOSE
This 1995 Stock Option/Stock Issuance Plan ("Plan") is intended to
promote the interests of CombiChem, Inc. (the "Corporation"), by providing
individuals who render valuable services to the Corporation (or any Parent or
Subsidiary) with the opportunity to acquire ownership interests in the
Corporation so as to encourage them to continue to render services to the
Corporation (or any Parent or Subsidiary).
2. STRUCTURE OF THE PLAN; TERMINOLOGY
This Plan has two separate components: the Option Grant Program set
forth in Article II and the Stock Issuance Program set forth in Article III. For
the purposes of this Plan, any capitalized term shall have the meaning assigned
under Article IV, Section 8 hereof.
3. ADMINISTRATION OF THE PLAN
A. This Plan shall be administered either the Board or a
committee of two (2) or more Board members appointed by the Board to which the
Board has delegated administrative functions under the Plan (the "Plan
Administrator"). Members of any committee to which the Board has delegated any
administrative functions shall serve for such terms as the Board shall determine
and subject to the Board's right of removal. All delegations of authority to any
committee shall be and remain revocable by the Board.
B. The Plan Administrator shall have full power and authority to
implement, interpret and administer the Plan, to establish all such rules and
regulations as it deems appropriate, and to make such determinations under the
Plan and any outstanding option grants or share issuances as it deems 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 outstanding option or share
issuance.
<PAGE> 2
4. SELECTION OF OPTIONEES AND PARTICIPANTS
A. The persons eligible to receive share issuances under the
Stock Issuance Program and/or option grants pursuant to the Option Grant Program
are limited to Employees; non-employee members of the Board of the Corporation
(or of any Parent or Subsidiary); and consultants and other independent
contractors who provide valuable services to the Corporation (or of any Parent
or Subsidiary).
B. The Plan Administrator shall have the absolute discretion and
authority to determine, subject to the provisions of this Plan, the terms of any
option grant or share issuance. In addition to any other matters over which the
Plan Administrator has discretion hereunder, the Plan Administrator shall
determine which, if any, eligible individuals will be granted options in
accordance with Article II of the Plan and which will be issued shares in
accordance with Article III of the Plan. With respect to option grants made
under the Plan, the Plan Administrator will determine 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
granted option is to become exercisable, the vesting schedule (if any)
applicable to shares issued pursuant to the granted options, and the maximum
term for which the option may remain outstanding. With respect to share
issuances under the Stock Issuance Program, in addition to other matters over
which the Plan Administrator has discretion hereunder, the Plan Administrator
will determine the number of shares to be issued to each issuee, the vesting
schedule (if any) applicable to the issued shares, and the consideration to be
paid by the individual for such shares.
C. Common Stock issuable under the Plan, whether under the Option
Grant Program or the Stock Issuance Program, may be subject to such restrictions
on transfer, repurchase rights or other restrictions as may be imposed by the
Plan Administrator and set forth in the documents governing such option or
issuance.
5. STOCK SUBJECT TO THE PLAN
A. Common Stock of the Corporation will be issued under the Plan.
The maximum number of shares of Common Stock which may be issued over the term
of the Plan shall not exceed 6,220,274 shares, subject to adjustment from time
to time in accordance with the provisions of this Section 5 of Article I. The
maximum number of shares of Common Stock which may be issued over the term of
the Plan at any one time shall not exceed 30% of the then outstanding shares of
the Corporation.
B. Shares reserved for issuance under granted options but not in
fact issued pursuant to options granted under the Plan due to the expiration or
termination of the option or the cancellation of the option in accordance with
Section 3 of Article II, will again become available for issuance under the
Plan. Shares actually issued under the Plan, whether pursuant to the exercise of
an option under the Option Grant Program
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<PAGE> 3
or a stock issuance pursuant to the Stock Issuance Program, which are
subsequently repurchased by the Corporation will not become available for future
issuance.
C. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock dividend, stock split, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the aggregate number and/or class of shares issuable under
the Plan and (ii) the aggregate number and/or class of shares and the option
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.
6. AMENDMENT OF THE PLAN AND AWARDS
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect the rights and
obligations of an optionee with respect to options at the time outstanding under
the Plan, nor adversely affect the rights of any issuee with respect to Common
Stock issued under the Plan prior to such action unless such optionee or issuee
consents to such amendment. In addition, the Board shall not, without the
approval of the Corporation's shareholders, amend the Plan so as to (i) increase
the maximum number of shares issuable under the Plan (except for adjustments
required under Article I, Section 5.C), (ii) materially increase the benefits
accruing to individuals who participate in the Plan, or (iii) materially modify
the eligibility requirements for participation in the Plan.
B. Options to purchase shares of Common Stock may be granted
under the Option Grant Program and shares of Common Stock may be issued under
the Stock Issuance Program, which are in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under the Option Grant Program or the Stock Issuance Program are held in
escrow until shareholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
date the initial excess issuances are made, then (I) any unexercised options
representing such excess shall terminate and cease to be exercisable and (II)
the Corporation shall promptly refund to the optionees and issuees the option or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.
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<PAGE> 4
7. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board.
Options to purchase shares of Common Stock may be granted under the Option Grant
Program and shares of Common Stock may be issued under the Stock Issuance
Program from and after the effective date, provided any shares actually issued
under the Plan are held in escrow until shareholder approval of the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
effective date, then (I) all options shall terminate and cease to be
exercisable, (II) the Corporation shall promptly refund to the optionees and
issuees the option or purchase price paid for any shares issued under the Plan,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding, and (III) this Plan shall
terminate in its entirety.
B. Unless sooner terminated by reason of Section 7A of this
Article I, the Plan shall terminate upon the earlier of (i) February 28, 2005,
or (ii) the date on which all shares available for issuance under the Plan have
been issued pursuant to the exercise of options granted under Article II or the
issuance of shares under Article III. The termination of the Plan shall have no
effect on any outstanding options under or shares issued and outstanding under
the Plan, and such securities shall thereafter continue to have force and effect
in accordance with the provisions of the agreements evidencing such options and
issuances.
8. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon any person 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) or of the optionee or the issuee, which rights are hereby expressly
reserved by each, to terminate Service of the optionee or issuee at any time for
any reason whatsoever, with or without cause or to engage in any Corporate
Transaction.
ARTICLE II
OPTION GRANT PROGRAM
1. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by action
of the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or Non-Statutory Options except that individuals who
are not Employees may only be granted Non-Statutory Options. Each granted option
shall be evidenced by one or more instruments in the form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
the terms and conditions of Sections 1 and 3 of this Article II and each
instrument evidencing an Incentive Option shall, in addition, comply with the
provisions of Section 2 of this Article II.
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<PAGE> 5
A. OPTION PRICE.
(I) The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than eighty-five percent (85%) of the Fair Market Value of a share of Common
Stock on the date of the option grant.
(II) The option price per share shall become immediately due
upon exercise of the option and shall, subject to the provisions of Article IV,
Section 1 and the agreement evidencing such grant, be payable in cash or check
drawn to the Corporation's order. Notwithstanding the above, should the
Corporation's outstanding Common Stock be registered under Section 12(g) of the
1934 Act, at the time the option is exercised, then the option price may also be
paid as follows:
- in shares of Common Stock held by the optionee for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value; or
- through a special sale and remittance procedure pursuant to
which the optionee provides irrevocable written instructions (I) to
a 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, an amount sufficient to
cover the aggregate option price payable for the purchased shares
plus all applicable Federal and State income and employment taxes
required to be withheld by the Corporation by reason of such
purchase and (II) to the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in order to
effect the sale transaction.
Except to the extent such sale and remittance procedure is utilized, payment of
the option price must occur at the time the option is exercised.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under the
Plan 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 stock option agreement evidencing such option. However, no option
granted under the Plan shall have a term in excess of ten (10) years from the
grant date.
C. NO ASSIGNMENT. During the lifetime of the optionee, the option
shall be exercisable only by the optionee and shall not be assignable or
transferable by the optionee otherwise than by will or by the laws of descent
and distribution following the optionee's death.
D. TERMINATION OF SERVICE. The following provisions shall govern
the exercise period applicable to any options held by the optionee at the time
of cessation of Service or death:
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<PAGE> 6
(I) Should the optionee cease to remain in Service for any
reason other than death or Permanent Disability, then the period during which
each outstanding option held by such optionee is to remain exercisable shall be
limited to the three (3)-month period following the date of such cessation of
Service.
(II) Should such Service terminate by reason of Permanent
Disability or should the optionee die while holding one or more outstanding
options, then the period during which each such option is to remain exercisable
shall be limited to the twelve (12)-month period following the date of the
optionee's cessation of Service or death. During the limited exercise period
following the optionee's death, the option may be exercised by the personal
representative of the optionee's estate or by 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.
(III) The Plan Administrator shall have full power and
authority to extend (either at the time the option is granted or at any time
while the option remains outstanding) the period of time for which the option is
to remain exercisable following the optionee's cessation of Service, from the
limited period otherwise applicable under subsection 1C of this Article II, to
such greater period of time as the Plan Administrator may deem appropriate under
the circumstances.
(IV) Notwithstanding the above no option shall be exercisable
after the specified expiration date of the option term.
(V) Each such option shall, during the applicable limited
exercise period, be exercisable only with respect to the shares for which the
option was exercisable on the date of the optionee's cessation of Service.
E. SHAREHOLDER RIGHTS. An optionee shall not have rights as a
shareholder with respect to any shares subject to an option until such optionee
shall have exercised the option and paid the option price.
2. INCENTIVE OPTIONS
All provisions of the Plan shall be applicable to Incentive Options
granted hereunder and, in addition, the terms and conditions specified in this
Section 2 shall be applicable to Incentive Options granted under the Plan.
Options which are specifically designated as Non-Statutory Options when issued
under the Plan shall not be subject to such terms and conditions set forth
herein.
A. OPTION PRICE.
(I) The option price per share of the Common Stock subject
to an Incentive Option shall in no event be less than one hundred percent (100%)
of the Fair Market Value of a share of Common Stock on the grant date.
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<PAGE> 7
(II) If the individual to whom the option is granted is a 10%
Shareholder, then the option price per share shall not be less than one hundred
ten percent (110%) of the Fair Market Value of the Common Stock on the date of
the option grant.
B. DOLLAR LIMITATION. The aggregate Fair Market Value (determined
as of the date or dates of grant) of Common Stock which first becomes
exercisable during any one calendar year under Incentive Options granted to any
Employee under any option plan of the Corporation (or any parent or subsidiary
corporation) shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds options which become exercisable in
the same calendar year, the foregoing limitation on such options shall be
applied on the basis of the order in which such options are granted. Any options
in excess of such limitation shall automatically be treated as Non-statutory
Options.
C. TERM OF OPTION FOR 10% SHAREHOLDERS. No option granted to a
10% Shareholder shall have a term in excess of five (5) years from the grant
date.
3. CANCELLATION AND NEW GRANT 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 optionees, the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or a
different numbers of shares of Common Stock but having an option price per share
established at the time of such cancellation and regrant in accordance with the
provisions of this Plan.
ARTICLE III
STOCK ISSUANCE PROGRAM
1. STOCK ISSUANCES
Shares of Common Stock shall be issuable under the Stock Issuance
Program through direct and immediate issuances without any intervening stock
option grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") in a form acceptable to the Plan Administrator,
which form shall be in compliance with the provisions of the Plan.
2. ISSUE PRICE
The purchase price per share shall be fixed by the Plan
Administrator, but in no event shall it be less than eighty-five percent (85%)
of the Fair Market Value of a share of Common Stock at the time of issuance.
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<PAGE> 8
3. PAYMENT OF ISSUE PRICE
Except as provided in Article IV, Section 1, shares shall be issued
only in exchange for cash, a check payable to the Corporation, for services
previously rendered to the Corporation (or any Parent or Subsidiary) or such
other lawful consideration as may be acceptable to the Plan Administrator.
ARTICLE IV
MISCELLANEOUS
1. LOANS
A. The Plan Administrator may assist any optionee or issuee
(other than a non-employee director) in the exercise of one or more options
granted to such optionee under the Option Grant Program or the purchase of one
or more shares to be issued to such issuee under the Stock Issuance Program,
including the satisfaction of any Federal and State income and employment tax
obligations arising therefrom, by (i) authorizing the extension of a loan from
the Corporation to such optionee or issuee, or (ii) permitting the optionee or
issuee to pay the option price or purchase price for the purchased Common Stock
in installments over a period of years.
B. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be established by the
Plan Administrator in its sole discretion. Loans or installment payments may be
authorized with or without security or collateral. However, any loan made to a
consultant or other non-employee advisor must be secured by property other than
the purchased shares of Common Stock. In all events the maximum credit available
to each optionee or issuee may not exceed the sum of (i) the aggregate option
price or purchase price payable for the purchased shares plus (ii) any Federal
and State income and employment tax liability incurred by the optionee or issuee
in connection with such exercise or purchase.
C. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under the financial assistance program
shall be subject to forgiveness by the Corporation in whole or in part upon such
terms and conditions as the Board in its discretion deems appropriate.
2. VESTING OF SHARES AND REPURCHASE RIGHTS
A. The Plan Administrator, in its absolute discretion, may issue
fully and immediately vested shares of Common Stock, or the Plan Administrator
may impose such vesting requirements as it deems appropriate with the
Corporation retaining a right to repurchase any unvested shares. The terms of
the vesting schedule and of the Corporation's repurchase rights shall be as
determined by the Plan Administrator and set forth in the agreement governing
such issuance. However, no option shall have a term in excess of ten (10) years
measured from the option grant date. In no event, however,
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<PAGE> 9
may the Plan Administrator impose a vesting schedule upon any shares issued
under the Plan which results in the vesting of fewer than 20% of the total
number of shares each year beginning one year after the option grant date. In
extraordinary circumstances, the Plan Administrator may grant options or issue
shares which are fully and immediately vested upon issuance.
B. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
holder of unvested Common Stock may have the right to receive by reason of a
stock dividend, stock split, reclassification or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration shall be issued subject to (i) the same vesting and repurchase
limitations applicable to the unvested Common Stock with respect to which it was
paid or arose, and (ii) such escrow arrangements as the Plan Administrator shall
deem appropriate.
C. No person to whom shares of Common Stock have been issued
pursuant to the Plan may transfer any such shares which have not vested.
Notwithstanding the above, the issuee shall have the right to make a gift of
unvested shares acquired under the Plan to his/her spouse, parents or issue or
to a trust established for such spouse, parents or issue, provided the
transferee of such shares delivers to the Corporation a written agreement to be
bound by all the provisions of the Plan and the Issuance or Stock Purchase
Agreement executed by the issuee at the time of his/her acquisition of the
gifted shares.
3. MARKET STAND-OFF AGREEMENTS
The Plan Administrator may require each person to whom any
shares are issued under this Plan to enter into an agreement which restricts or
prohibits the sale of any stock of the Corporation by such person for a
reasonable period of time following a public offering of any shares of stock by
the Corporation.
4. RIGHT OF FIRST REFUSAL
Until such time as the Corporation's outstanding shares of
Common Stock are first registered under Section 12(g) of the 1934 Act, the Plan
Administrator may subject any shares issued pursuant to the Plan to a right of
first refusal with respect to any proposed disposition of such shares other than
a transfer permitted by Section 2.C of this Article IV. Such right of first
refusal shall be exercisable by the Corporation (or its assignees) in accordance
with the terms and conditions specified in the instrument governing the issuance
of such shares.
5. SECURITIES LAWS; LEGENDS
A. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until the Corporation shall have determined
that
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<PAGE> 10
there has been full and adequate compliance with all applicable requirements of
the Federal and state securities laws and all other applicable legal and
regulatory requirements.
B. Shares issued under the Plan shall bear such legends as the
Plan Administrator deems necessary or appropriate, including such restrictive
legends as the Plan Administrator shall require to reflect the terms of any
agreement between the issuee and the Corporation.
6. SHAREHOLDER RIGHTS
Subject to the rights of the Corporation set forth herein or in any
other agreement entered into between the Corporation and an issuee of shares
under the Plan, each person to whom shares of Common Stock have been issued
under the Plan shall have all the rights of a shareholder with respect to those
shares whether or not his/her interest in such shares is vested. Accordingly,
the issuee shall have the right to vote such shares and to receive any cash
dividends or other distributions paid or made with respect to such shares.
7. ACCELERATION
Subject to Section 4.13 of that certain Series C Preferred Stock
Purchase Agreement dated on or about August 17, 1995, the Plan Administrator
may, in its discretion, provide for the automatic acceleration upon a Change of
Control and\or Corporate Transaction of the time at which any option will become
exercisable or for the lapse of any repurchase right tied to vesting. Such
acceleration may be provided for at any time by the Plan Administrator in the
exercise of its discretion, or may be included as a right of the optionee or
issuee in the documents evidencing the rights of the optionee or issuee.
8. DEFINITIONS
The following definitions shall be in effect under this Plan:
A. BOARD shall mean the Board of Directors of the Corporation.
B. COMMON STOCK shall mean the common stock of the Corporation.
C. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) any transaction or series of related transactions
(including, without limitation, any reorganization, merger or
consolidation) in which more than fifty percent (50%) of the Corporation's
outstanding
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<PAGE> 11
voting stock is transferred to a person or persons different from those
who held the stock 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.
D. 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.
E. FAIR MARKET VALUE per share of Common Stock on any relevant
date under the Plan shall be the value determined in accordance with the
following provisions:
(i) If the Common Stock is not at the time listed or
admitted to trading on any Stock Exchange but is traded on the NASDAQ
National Market System, the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers through the
NASDAQ National Market System 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 or admitted to
trading 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 nor
admitted to trading on any Stock Exchange nor traded on the NASDAQ
National Market System, then such Fair Market Value shall be determined by
the Plan Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
F. INCENTIVE OPTION shall mean a stock option which satisfies the
requirements of Internal Revenue Code Section 422.
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<PAGE> 12
G. NON-STATUTORY OPTION shall mean a stock option not intended to
meet the requirements of Code Section 422.
H. 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.
I. PERMANENT DISABILITY shall have the meaning assigned to such
term in Code Section 22(e)(3).
J. SERVICE shall mean the provision of services to the
Corporation or any Parent or Subsidiary by an individual in the capacity of an
Employee, a non-employee member of the Board or a consultant or independent
contractor.
K. SUBSIDIARY shall mean each corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each such 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.
L. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation.
9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the issuance of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
10. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise of
any options granted under Article II or the purchase of any shares issued under
Article III shall be subject to the satisfaction of all applicable Federal,
State and local income and employment tax withholding requirements.
11. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under
the Option Grant Program, the issuance of any shares under the Stock Issuance
Program, and the issuance of Common Stock upon the exercise of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits
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<PAGE> 13
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it, and the Common Stock issued pursuant to it.
12. INFORMATION TO OPTIONEES AND PARTICIPANTS
The Corporation shall provide financial statements to all optionees
and/or participants at least annually.
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<PAGE> 1
EXHIBIT 10.40
COMBICHEM, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following stock option grant (the "Option")
pursuant to the 1995 STOCK OPTION/STOCK ISSUANCE PLAN (the "Plan") to purchase
shares of the Common Stock of CombiChem, Inc. (the "Corporation"):
Optionee: ____________________________
Grant Date: __________________________
Grant Number: _____ Option Price: $_____ per share
Vesting Commencement Date: _____________________
Number of Option Shares: ___________________ shares
Expiration Date: _____________________
Type of Option: _____ Incentive Stock Option
_____ Non-Statutory Stock Option
Date Exercisable:
The Option shall be immediately exercisable for all vested and unvested
shares.
Vesting Schedule
The Option Shares shall be vest in accordance with the following vesting
schedule:
(i) No Option Shares shall vest unless and until the Optionee has
completed twelve (12) months of Service (as defined in the Plan) measured from
the Vesting Commencement Date.
(ii) Upon the completion of the twelve (12) month service period
specified in subparagraph (i) above, 25% of the Option Shares shall become
vested.
(iii) The Remaining Option Shares shall vest in a series of
successive equal monthly installments over each of the next thirty-six (36)
months of Service completed by the Optionee after the initial twelve (12) month
service period specified in subparagraph (i) above.
<PAGE> 2
Optionee understands that the Option is granted pursuant to the
Corporation's Plan. By signing below, optionee agrees to be bound by the terms
and conditions of the Plan and the terms and conditions of the Option as set
forth in the Stock Option Agreement attached hereto as Exhibit A. Optionee
understands that any Option Shares purchased under the Option will be subject to
the terms and conditions set forth in the Stock Purchase Agreement attached
hereto as Exhibit B.
Optionee hereby acknowledges receipt of a copy of the Plan in the form
attached hereto as Exhibit C.
REPURCHASE RIGHTS. THE OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO REPURCHASE RIGHTS
AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS UPON
ANY PROPOSED SALE, ASSIGNMENT, TRANSFER, ENCUMBRANCE OR OTHER DISPOSITION OF THE
CORPORATION'S SHARES. THE TERMS AND CONDITIONS OF SUCH RIGHTS ARE SPECIFIED IN
THE STOCK PURCHASE AGREEMENT.
No Employment or Service Contract. Nothing in this Agreement or in the
Plan shall confer upon the Optionee any right to continue in the Service of the
Corporation for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation or the Optionee, which rights
are hereby expressly reserved by each, to terminate Optionee's Service at any
time for any reason whatsoever, with or without cause.
________________________, 199__
Date
CombiChem, Inc.
By_______________________________________
Title:___________________________________
_________________________________________
Optionee
Address:
_________________________________________
_________________________________________
<PAGE> 3
EXHIBIT A
STOCK OPTION AGREEMENT
A-1
<PAGE> 4
COMBICHEM, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board of Directors of the Corporation has adopted the CombiChem,
Inc. 1995 Stock Option/Stock Issuance Plan (the "Plan") for the purpose of
attracting and retaining the services of persons who contribute to the growth
and financial success of the Corporation.
B. Optionee is a person who the Plan Administrator believes has and
will contribute to the growth and financial success of the Corporation and this
Agreement is executed pursuant to and is intended to carry out the purposes of
the Plan.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of the
grant date (the "Grant Date") specified in the accompanying Notice of Grant of
Stock Option (the "Grant Notice"), a stock option to purchase up to that number
of shares of the Corporation's Common Stock (the "Option Shares") as is
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term at the option price per share (the "Option
Price") specified in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten (10) years
measured from the Grant Date and shall expire at the close of business on the
expiration date (the "Expiration Date") specified in the Grant Notice, unless
sooner terminated in accordance with Paragraph 5, 6 or 17.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee.
4. DATES OF EXERCISE. This option may not be exercised in whole or in
part at any time prior to the time the Plan is approved by the Corporation's
shareholders in accordance with Paragraph 17. Provided such shareholder approval
is obtained, this option shall thereupon become exercisable for the Option
Shares in one or more installments as is specified in the Grant Notice. As the
option becomes exercisable in one or more installments, the installments shall
accumulate and the option shall remain exercisable for such installments until
the Expiration Date or the sooner termination of the option term under Paragraph
5 or Paragraph 6 of this Agreement.
<PAGE> 5
5. ACCELERATED TERMINATION OF OPTION TERM. Unless extended by the Plan
Administrator in its sole discretion, the option term specified in Paragraph 2
shall terminate (and this option shall cease to be exercisable) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Except as otherwise provided in subparagraph (ii) or (iii)
below, should Optionee cease to remain in Service while this option is
outstanding, then the period for exercising this option shall be reduced
to a three (3)-month period commencing with the date of such cessation of
Service, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such three (3)-month
period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(ii) Should Optionee die while this option is outstanding, 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 law of descent and distribution shall have the right
to exercise this option. Such right shall lapse and this option shall
cease to be exercisable upon the earlier of (A) the expiration of the
twelve (12) month period measured from the date of Optionee's death or (B)
the Expiration Date. Upon the expiration of such twelve (12) month period
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to remain in Service while this option is outstanding, then
the Optionee shall have a period of twelve (12) months (commencing with
the date of such cessation of Service) during which to exercise this
option, but in no event shall this option be exercisable at any time after
the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is unable to engage in any substantial gainful activity for
the Corporation or the parent or subsidiary corporation retaining his/her
services by reason of any medically determinable physical or mental
impairment, which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve
(12) months. Upon the expiration of such limited period of exercisability
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.
(iv) During the limited period of exercisability applicable under
subparagraph (i), (ii) or (iii) above, this option may be exercised for
any or all of the Option Shares for which this option is, at the time of
the Optionee's cessation of Service, exercisable in accordance with the
exercise schedule specified in the Grant Notice and the provisions of
Paragraph 6 of this Agreement.
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<PAGE> 6
(v) For purposes of this Paragraph 5 and for all other purposes
under this Agreement:
A. The Optionee shall be deemed to remain in SERVICE for so long
as the Optionee continues to render periodic services to the Corporation
or any parent or subsidiary corporation, whether as an Employee, a
non-employee member of the board of directors, or an independent
contractor or consultant.
B. The Optionee shall be deemed to be an EMPLOYEE of the
Corporation and to continue in the Corporation's employ for so long as the
Optionee remains in the employ of the Corporation or one or more of its
parent or subsidiary corporations, 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.
C. A corporation shall be considered to be a SUBSIDIARY
corporation of the Corporation if it is a member of an unbroken chain of
corporations beginning with the Corporation, provided each such
corporation in the chain (other than the last corporation) owns, at the
time of determination, stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain.
D. A corporation shall be considered to be a PARENT corporation
of the Corporation if it is a member of an unbroken chain ending with the
Corporation, provided each such corporation in the chain (other than the
Corporation) owns, at the time of determination, stock possessing 50% or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
6. SPECIAL TERMINATION OF OPTION.
A. This Option, to the extent not previously exercised, shall terminate
and cease to be exercisable upon the consummation of one or more of the
following shareholder- approved transactions (a "Corporate Transaction") unless
this Option is expressly assumed by the successor corporation or parent thereof:
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
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<PAGE> 7
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation.
B. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES.
A. In the event any change is made to the Corporation's outstanding
Common Stock by reason of any stock split, stock dividend, combination of
shares, exchange of shares, or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the total number of Option Shares subject to this option,
(ii) the number of Option Shares for which this option is to be exercisable from
and after each installment date specified in the Grant Notice and (iii) the
Option Price payable per share in order to reflect such change and thereby
preclude a dilution or enlargement of benefits hereunder.
B. If this option is to be assumed in connection with a Corporate
Transaction described in Paragraph 6 or is otherwise to remain outstanding, then
this option shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain 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, and appropriate adjustments shall also be made to the Option Price
payable per share, provided the aggregate Option Price payable hereunder shall
remain the same.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a shareholder with respect to the Option Shares until
such individual shall have exercised the option and paid the Option Price.
9. MANNER OF EXERCISING OPTION.
A. In order to exercise this option with respect to all or any part of
the Option Shares for which this option is at the time exercisable, Optionee (or
in the case of exercise after Optionee's death, the Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
(i) Execute and deliver to the Secretary of the Corporation a
stock purchase agreement (the "Purchase Agreement") in substantially the
form of Exhibit B to the Grant Notice.
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<PAGE> 8
(ii) Pay the aggregate Option Price for the purchased shares in one
or more forms approved under the Plan.
(iii) Furnish to the Corporation appropriate documentation that the
person or persons exercising the option, if other than Optionee, have the
right to exercise this option.
B. Should the Corporation's outstanding Common Stock be registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") at the time the option is exercised, then the Option Price may also
be paid as follows:
(i) in shares of Common Stock held by the Optionee 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) through a special sale and remittance procedure pursuant to
which the Optionee is to provide irrevocable written instructions (a) to a
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 Option Price
payable for the purchased shares plus all applicable Federal and State
income and employment taxes required to be withheld by the Corporation by
reason of such purchase and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in
order to effect the sale transaction.
C. For purposes of this Agreement, the Exercise Date shall be the date
on which the executed Purchase Agreement shall have been delivered to the
Corporation, and the fair market value of a share of Common Stock on any
relevant date shall be determined in accordance with subparagraphs (i) through
(iii) below:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the NASDAQ National Market
System, the fair market value shall be the closing selling price of one
share of Common Stock on the date in question, as such price is reported
by the National Association of Securities Dealers through its NASDAQ
system or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the closing selling price
on the last preceding date for which such quotation exists shall be
determinative of fair market value.
(ii) If the Common Stock is at the time listed or admitted to
trading 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
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<PAGE> 9
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common
Stock on such exchange on the date in question, then the fair market value
shall be the closing selling price on the exchange on the last preceding
date for which such quotation exists.
(iii) If the Common Stock at the time is neither listed nor admitted
to trading on any stock exchange nor traded in the over-the-counter
market, or if the Plan Administrator determines that the value determined
pursuant to subparagraphs (i) and (ii) above does not accurately reflect
the fair market value of the Common Stock, then such fair market value
shall be determined by the Plan Administrator after taking into account
such factors as the Plan Administrator shall deem appropriate.
D. As soon after the Exercise Date as practical, the Corporation shall
mail or deliver to Optionee or to the other person or persons exercising this
option a certificate or certificates representing the shares so purchased and
paid for, with the appropriate legends affixed thereto.
E. In no event may this option be exercised for any fractional shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
A. The exercise of this option and the issuance of Option Shares upon
such exercise shall be subject to compliance by the Corporation and the Optionee
with all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Corporation's Common
Stock may be listed at the time of such exercise and issuance.
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
12. LIABILITY OF CORPORATION.
A. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares, unless
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<PAGE> 10
shareholder approval of an amendment sufficiently increasing the number of
shares of Common Stock issuable under the Plan is obtained in accordance with
the provisions of Article IV, Section 3, of the Plan.
B. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee's
signature line on the Grant Notice. All notices shall be deemed to have been
given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
14. LOANS. The Plan Administrator may, in its absolute discretion and
without any obligation to do so, assist the Optionee in the exercise of this
option by (i) authorizing the extension of a loan to the Optionee from the
Corporation or (ii) permitting the Optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
such loan or installment method of payment (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this option.
16. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Corporation's shareholders within twelve (12) months
after the adoption of the Plan by the Board of Directors. Notwithstanding any
provision of this Agreement to the contrary, this option may not be exercised in
whole or in part until such shareholder approval is obtained. In the event that
such shareholder approval is not obtained, then this option shall thereupon
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<PAGE> 11
terminate in its entirety and the Optionee shall have no further rights to
acquire any Option Shares hereunder.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In the
event this option is designated an incentive stock option in the Grant Notice,
the following terms and conditions shall also apply to the grant:
A. This option shall cease to qualify for favorable tax treatment as an
incentive stock option under the Federal tax laws if (and to the extent) this
option is exercised for one or more Option Shares: (i) more than three (3)
months after the date the Optionee ceases to be an Employee for any reason other
than death or permanent disability (as defined in Paragraph 5) or (ii) more than
one (1) year after the date the Optionee ceases to be an Employee by reason of
permanent disability.
B. Should this option be designated as immediately exercisable in the
Grant Notice, then this option shall not become exercisable in the calendar year
in which granted if (and to the extent) the aggregate fair market value
(determined at the Grant Date) of the Corporation's Common Stock for which this
option would otherwise first become exercisable in such calendar year would,
when added to the aggregate fair market value (determined as of the respective
date or dates of grant) of the Corporation's Common Stock for which this option
or one or more other incentive stock options granted to the Optionee prior to
the Grant Date (whether under the Plan or any other option plan of the
Corporation or its parent or subsidiary corporations) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. To the extent the exercisability of this option is deferred by
reason of the foregoing limitation, the deferred portion will first become
exercisable in the first calendar year or years thereafter in which the One
Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18.B would not
be contravened.
C. Should this option be designated as exercisable in installments in
the Grant Notice, then no installment under this option (whether annual or
monthly) shall qualify for favorable tax treatment as an incentive stock option
under the Federal tax laws if (and to the extent) the aggregate fair market
value (determined at the Grant Date) of the Corporation's Common Stock for which
such installment first becomes exercisable hereunder will, when added to the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Corporation's Common Stock for which one or more other incentive
stock options granted to the Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any parent or subsidiary
corporation) first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate.
19. WITHHOLDING. Optionee hereby agrees to make appropriate arrangements
with the Corporation or parent or subsidiary corporation employing Optionee for
the satisfaction of all Federal, State or local income tax withholding
requirements and Federal social security employee tax requirements applicable to
the exercise of this option.
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<PAGE> 12
EXHIBIT B
STOCK PURCHASE AGREEMENT
B-1
<PAGE> 13
IMMEDIATELY EXERCISABLE
REPURCHASE RIGHT
RIGHT OF FIRST REFUSAL
COMBICHEM, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this ____ day of ________, 19__, by and among
CombiChem, Inc. (the "Corporation"), ______________________, the holder of a
stock option (the "Optionee") under the Corporation's 1995 Stock Option/Stock
Issuance Plan and _________________, the Optionee's spouse.
I. EXERCISE OF OPTION
1.1 EXERCISE. Optionee hereby purchases _________ shares
("Purchased Shares") of the Corporation's common stock ("Common Stock") pursuant
to that certain option ("Option") granted Optionee on ______________ ("Grant
Dates") to purchase up to _________ shares of the Common Stock ("Total
Purchasable Shares") under the Corporation's 1995 Stock Option/Stock Issuance
Plan (the "Plan") at an option price of $_____ per share ("Option Price").
1.2 PAYMENT. Concurrently with the delivery of this Agreement to
the Corporate Secretary of the Corporation, Optionee shall pay the Option Price
for the Purchased Shares in accordance with the provisions of the agreement
between the Corporation and Optionee evidencing the Option (the "Option
Agreement") and shall deliver whatever additional documents may be required by
the Option Agreement as a condition for exercise, together with a duly- executed
blank Assignment Separate from Certificate (in the form attached hereto as
Exhibit I) with respect to the Purchased Shares.
1.3 DELIVERY OF CERTIFICATES. The certificates representing the
Purchased Shares hereunder shall be held in escrow by the Corporate Secretary of
the Corporation in accordance with the provisions of Article VII.
1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation
actually exercises its repurchase right, rights of first refusal or special
purchase right under this Agreement, Optionee (or any successor in interest)
shall have all the rights of a shareholder (including voting and dividend
rights) with respect to the Purchased Shares, including the Purchased Shares
held in escrow under Article VII, subject, however, to the transfer restrictions
of Article IV.
II. SECURITIES LAW COMPLIANCE
2.1 EXEMPTION FROM REGISTRATION. The Purchased Shares have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
and are accordingly
<PAGE> 14
being issued to Optionee in reliance upon the exemption from such registration
provided by Rule 701 of the Securities and Exchange Commission for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
acknowledges previous receipt of a copy of the documentation for such Plan in
the form of Exhibit C to the Notice of Grant of Stock Option (the "Grant
Notice") accompanying the Option Agreement.
2.2 RESTRICTED SECURITIES.
A. Optionee hereby confirms that Optionee has been informed that
the Purchased Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless the Purchased Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Optionee hereby acknowledges that Optionee is prepared
to hold the Purchased Shares for an indefinite period and that Optionee is aware
that Rule 144 of the Securities and Exchange Commission issued under the 1933
Act is not presently available to exempt the sale of the Purchased Shares from
the registration requirements of the 1933 Act.
B. Upon the expiration of the ninety (90)-day period immediately
following the date on which the Corporation first becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Purchased Shares, to the extent vested under Article V, may
be sold (without registration) pursuant to the applicable requirements of Rule
144. If Optionee is at the time of such sale an affiliate of the Corporation for
purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the two (2)-year holding period requirement
of the Rule will not be applicable. If Optionee is not at the time of the sale
an affiliate of the Corporation nor was such an affiliate during the preceding
three (3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Purchased Shares held for less than
three (3) years following payment in cash of the Option Price therefor) will be
applicable to the sale.
C. Should the Corporation not become subject to the reporting
requirements of the Exchange Act, then Optionee may, provided he/she is not at
the time an affiliate of the Corporation (nor was such an affiliate during the
preceding three (3) months), sell the Purchased Shares (without registration)
pursuant to paragraph (k) of Rule 144 after the Purchased Shares have been held
for a period of three (3) years following the payment in cash of the Option
Price for such shares.
2.3 DISPOSITION OF SHARES. Optionee hereby agrees that Optionee
shall make no disposition of the Purchased Shares (other than a permitted
transfer under paragraph 4.1) unless and until there is compliance with all of
the following requirements:
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<PAGE> 15
(a) Optionee shall have notified the Corporation of the
proposed disposition and provided a written summary of the terms and
conditions of the proposed disposition.
(b) Optionee shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(c) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that (i) the proposed disposition does not require registration of the
Purchased Shares under the 1933 Act or (ii) all appropriate action
necessary for compliance with the registration requirements of the 1933
Act or of any exemption from registration available under the 1933 Act
(including Rule 144) has been taken.
(d) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that the proposed disposition will not result in the contravention of any
transfer restrictions applicable to the Purchased Shares pursuant to the
provisions of the Commissioner Rules identified in paragraph 2.5.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Article II nor (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee to
whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.4 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with restrictive legends, including one or more of the
following legends:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
(ii) "The shares represented by this certificate are unvested
and accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated February 24, 1997 between the Corporation and the registered holder of the
shares (or the predecessor in interest to the shares). Such agreement grants
certain repurchase rights and rights of first refusal to the Corporation (or its
assignees) upon the sale, assignment, transfer, encumbrance or other disposition
of the
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Corporation's shares or upon termination of service with the Corporation. The
Corporation will upon written request furnish a copy of such agreement to the
holder hereof without charge."
III. SPECIAL TAX ELECTION
3.1 SECTION 83(B) ELECTION APPLICABLE TO THE EXERCISE OF A
NON-STATUTORY STOCK OPTION. If the Purchased Shares are acquired hereunder
pursuant to the exercise of a non-statutory stock option, as specified in the
Grant Notice, then the Optionee understands that under Section 83 of the
Internal Revenue Code of 1986, as amended (the "Code"), the excess of the fair
market value of the Purchased Shares on the date any forfeiture restrictions
applicable to such shares lapse over the Option Price paid for such shares will
be reportable as ordinary income on such lapse date. For this purpose, the term
"forfeiture restrictions" includes the right of the Corporation to repurchase
the Purchased Shares pursuant to the Repurchase Right provided under Article V
of this Agreement. Optionee understands that he/she may elect under Section
83(b) of the Code to be taxed at the time the Purchased Shares are acquired
hereunder, rather than when and as such Purchased Shares cease to be subject to
such forfeiture restrictions. Such election must be filed with the Internal
Revenue Service within thirty (30) days after the date of this Agreement. Even
if the fair market value of the Purchased Shares at the date of this Agreement
equals the Option Price paid (and thus no tax is payable), the election must be
made to avoid adverse tax consequences in the future. THE FORM FOR MAKING THIS
ELECTION IS ATTACHED AS EXHIBIT II HERETO. OPTIONEE UNDERSTANDS THAT FAILURE TO
MAKE THIS FILING WITHIN THE THIRTY (30)-DAY PERIOD WILL RESULT IN THE
RECOGNITION OF ORDINARY INCOME BY THE OPTIONEE AS THE FORFEITURE RESTRICTIONS
LAPSE.
3.2 CONDITIONAL SECTION 83(B) ELECTION APPLICABLE TO THE EXERCISE
OF AN INCENTIVE STOCK OPTION. If the Purchased Shares are acquired hereunder
pursuant to the exercise of an incentive stock option under the Federal tax
laws, as specified in the Grant Notice, then the following tax principles shall
be applicable to the Purchased Shares:
A. For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
B. The excess of (i) the fair market value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over (ii)
the Option Price paid for the Purchased Shares will be includible in the
Optionee's taxable income for alternative minimum tax purposes.
C. If the Optionee makes a disqualifying disposition of the
Purchased Shares, then the Optionee will recognize ordinary income in the
year of such disposition equal in amount to the excess of (i) the fair
market value of the Purchased Shares on the date the Option is exercised
or (if later) on the date
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any forfeiture restrictions applicable to the Purchased Shares lapse over
(ii) the Option Price paid for the Purchased Shares. Any additional gain
recognized upon the disqualifying disposition will be either short-term or
long-term capital gain depending upon the period for which the Purchased
Shares are held prior to the disposition.
D. For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right provided under Article V
of this Agreement. The term "disqualifying disposition" means any sale or
other disposition 1 of the Purchased Shares within two (2) years after the
Grant Date or within one (1) year after the execution date of this
Agreement.
E. In the absence of final Treasury Regulations relating to
incentive stock options, it is not certain whether the Optionee may, in
connection with the exercise of the Option for any Purchased Shares at the
time subject to forfeiture restrictions, file a protective election under
Section 83(b) of the Code which would limit (I) the Optionee's alternative
minimum taxable income upon exercise and (II) the Optionee's ordinary
income upon a disqualifying disposition, to the excess of (i) the fair
market value of the Purchased Shares on the date the Option is exercised
over (ii) the Option Price paid for the Purchased Shares. THE APPROPRIATE
FORM FOR MAKING SUCH A PROTECTIVE ELECTION IS ATTACHED AS EXHIBIT II TO
THIS AGREEMENT AND MUST BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN
THIRTY (30) DAYS AFTER THE DATE OF THIS AGREEMENT. HOWEVER, SUCH ELECTION
IF PROPERLY FILED WILL ONLY BE ALLOWED TO THE EXTENT THE FINAL TREASURY
REGULATIONS PERMIT SUCH A PROTECTIVE ELECTION.
3.3 OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE
RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER
SECTION 83(B), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON HIS/HER BEHALF. This filing should be made by registered
or certified mail, return receipt requested,
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1 Generally, a disposition of shares purchased under an incentive
stock option includes any transfer of legal title, including a transfer by sale,
exchange or gift, but does not include a transfer to the Optionee's spouse, a
transfer into joint ownership with right of survivorship if Optionee remains one
of the joint owners, a pledge, a transfer by bequest or inheritance or certain
tax free exchanges permitted under the Code.
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and Optionee must retain two (2) copies of the completed form for filing with
his or her State and Federal tax returns for the current tax year and an
additional copy for his or her records.
IV. TRANSFER RESTRICTIONS
4.1 RESTRICTION ON TRANSFER. Optionee shall not transfer, assign,
encumber or otherwise dispose of any of the Purchased Shares which are subject
to the Corporation's Repurchase Right under Article V. In addition, Purchased
Shares which are released from the Repurchase Right shall not be transferred,
assigned, encumbered or otherwise made the subject of disposition in
contravention of the Corporation's First Refusal Right under Article VI. Such
restrictions on transfer, however, shall not be applicable to (i) a gratuitous
transfer of the Purchased Shares made to the Optionee's spouse or issue,
including adopted children, or to a trust for the exclusive benefit of the
Optionee or the Optionee's spouse or issue, provided and only if the Optionee
obtains the Corporation's prior written consent to such transfer, (ii) a
transfer of title to the Purchased Shares effected pursuant to the Optionee's
will or the laws of intestate succession or (iii) a transfer to the Corporation
in pledge as security for any purchase-money indebtedness incurred by the
Optionee in connection with the acquisition of the Purchased Shares.
4.2 TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of one of the
permitted transfers specified in paragraph 4.1 must, as a condition precedent to
the validity of such transfer, acknowledge in writing to the Corporation that
such person is bound by the provisions of this Agreement and that the
transferred shares are subject to (i) both the Corporation's Repurchase Right
and the Corporation's First Refusal Right granted hereunder and (ii) the market
stand-off provisions of paragraph 4.4, to the same extent such shares would be
so subject if retained by the Optionee.
4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI and
VII of this Agreement, the term "Owner" shall include the Optionee and all
subsequent holders of the Purchased Shares who derive their chain of ownership
through a permitted transfer from the Optionee in accordance with paragraph 4.1.
4.4 MARKET STAND-OFF PROVISIONS.
A. In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such limitations shall be in effect for such
period of time from and after the effective date of such registration statement
as may be requested by the Corporation or such underwriters; provided, however,
that in no event shall such period exceed one hundred-eighty (180) days. The
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limitations of this paragraph 4.4 shall remain in effect for the two-year period
immediately following the effective date of the Corporation's initial public
offering and shall thereafter terminate and cease to have any force or effect.
B. Owner shall be subject to the market stand-off provisions of
this paragraph 4.4 provided and only if the officers and directors of the
Corporation are also subject to similar arrangements.
C. In the event of any stock dividend, stock split,
recapitalization or other change affecting the Corporation's outstanding Common
Stock effected as a class without receipt of consideration, then any new,
substituted or additional securities distributed with respect to the Purchased
Shares shall be immediately subject to the provisions of this paragraph 4.4, to
the same extent the Purchased Shares are at such time covered by such
provisions.
D. In order to enforce the limitations of this paragraph 4.4, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
V. REPURCHASE RIGHT
5.1 GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date the Optionee ceases for any reason to remain in Service or
(if later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Option Price all or (at the discretion of the
Corporation and with the consent of the Optionee) any portion of the Purchased
Shares in which the Optionee has not acquired a vested interest in accordance
with the vesting provisions of paragraph 5.3 (such shares to be hereinafter
called the "Unvested Shares"). For purposes of this Agreement, the Optionee
shall be deemed to remain in Service for so long as the Optionee continues to
render periodic services to the Corporation or any parent or subsidiary
corporation, whether as an employee, a non-employee member of the board of
directors, or an independent contractor or consultant.
5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one or
more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with paragraph 7.3 or from Owner as herein
provided), pay to Owner in cash or cash
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<PAGE> 20
equivalents (including the cancellation of any purchase-money indebtedness), an
amount equal to the Option Price previously paid for the Unvested Shares which
are to be repurchased.
5.3 TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under paragraph 5.2. In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to any and all Purchased
Shares in which the Optionee vests in accordance with the vesting schedule
specified in the Grant Notice. All Purchased Shares as to which the Repurchase
Right lapses shall, however, continue to be subject to (i) the First Refusal
Right of the Corporation and its assignees under Article VI, (ii) the market
stand-off provisions of paragraph 4.4 and (iii) the Special Purchase Right under
Article VIII.
5.4 AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that the Optionee is a party to one or more other
Stock Purchase Agreements ("Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which the Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which the Optionee would otherwise at the time
be vested, in accordance with the vesting provisions of paragraph 5.3, had all
the Purchased Shares been acquired exclusively under this Agreement.
5.5 FRACTIONAL SHARES. No fractional shares shall be repurchased
by the Corporation. Accordingly, should the Repurchase Right extend to a
fractional share (in accordance with the vesting provisions of paragraph 5.3) at
the time the Optionee ceases Service, then such fractional share shall be added
to any fractional share in which the Optionee is at such time vested in order to
make one whole vested share no longer subject to the Repurchase Right.
5.6 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of
any stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased
Shares shall be immediately subject to the Repurchase Right, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number of Purchased Shares and Total Purchasable Shares hereunder
and to the price per share to be paid upon the exercise of the Repurchase Right
in order to reflect the effect of any such transaction upon the Corporation's
capital structure; provided, however, that the aggregate purchase price shall
remain the same.
5.7 CORPORATE TRANSACTION.
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A. Except to the extent the Repurchase Right is to be assigned to
the successor corporation (or its parent company), immediately prior to the
consummation of any of the following shareholder-approved transactions (a
"Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation,
the Corporation may exercise the Repurchase Right with respect to the then
Unvested Shares. The Repurchase Right shall automatically lapse with respect to
all Unvested Shares not repurchased hereunder.
B. To the extent the Repurchase Right remains in effect following
such Corporate Transaction, it shall apply to the new capital stock or other
property (including cash) received in exchange for the Shares in consummation of
the Corporate Transaction, but only to the extent the Shares are at the time
covered by such right. Appropriate adjustments shall be made to the price per
share payable upon exercise of the Repurchase Right to reflect the effect of the
Corporate Transaction upon the Corporation's capital structure; provided,
however, that the aggregate Purchase Price shall remain the same.
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VI. RIGHT OF FIRST REFUSAL
6.1 GRANT. The Corporation is hereby granted rights of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which the Optionee has vested in accordance
with the vesting provisions of Article V. For purposes of this Article VI, the
term "transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Purchased Shares intended to be made by the Owner,
but shall not include any of the permitted transfers under paragraph 4.1.
6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires
to accept a bona fide third-party offer for the transfer of any or all of the
Purchased Shares (the shares subject to such offer to be hereinafter called the
"Target Shares"), Owner shall promptly (i) deliver to the Corporate Secretary of
the Corporation written notice (the "Disposition Notice") of the terms and
conditions of the offer, including the purchase price and the identity of the
third-party offeror, and (ii) provide satisfactory proof that the disposition of
the Target Shares to such third-party offeror would not be in contravention of
the provisions set forth in Articles II and IV of this Agreement.
6.3 EXERCISE OF RIGHT. The Corporation shall, for a period of
forty-five (45) days following receipt of the Disposition Notice, have the right
to repurchase any or all of the Target Shares specified in the Disposition
Notice upon the same terms and conditions specified therein or upon terms and
conditions which do not materially vary from those specified therein. Such right
shall be exercisable by delivery of written notice (the "Exercise Notice") to
Owner prior to the expiration of the forty-five (45)-day exercise period. If
such right is exercised with respect to all the Target Shares specified in the
Disposition Notice, then the Corporation (or its assignees) shall effect the
repurchase of the Target Shares, including payment of the purchase price, not
more than ten (10) business days after delivery of the Exercise Notice; and at
such time Owner shall deliver to the Corporation the certificates representing
the Target Shares to be repurchased, each certificate to be properly endorsed
for transfer. To the extent any of the Target Shares are at the time held in
escrow under Article VII, the certificates for such shares shall automatically
be released from escrow and delivered to the Corporation for purchase. Should
the purchase price specified in the Disposition Notice be payable in property
other than cash or evidences of indebtedness, the Corporation (or its assignees)
shall have the right to pay the purchase price in the form of cash equal in
amount to the value of such property. If the Owner and the Corporation (or its
assignees) cannot agree on such cash value within ten (10) days after the
Corporation's receipt of the Disposition Notice, the valuation shall be made by
an appraiser of recognized standing selected by the Owner and the Corporation
(or its assignees) or, if they cannot agree on an appraiser within twenty (20)
days after the Corporation's receipt of the Disposition Notice, each shall
select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of such value. The cost of such appraisal shall be shared equally
by the Owner and the Corporation. The closing shall then be held on the later of
(i) the tenth business day following
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delivery of the Exercise Notice or (ii) the tenth business day after such cash
valuation shall have been made.
6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to Owner within forty-five (45) days following the date of the
Corporation's receipt of the Disposition Notice, Owner shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; provided,
however, that any such sale or disposition must not be effected in contravention
of the provisions of Article II of this Agreement. To the extent any of the
Target Shares are at the time held in escrow under Article VII, the certificates
for such shares shall automatically be released from escrow and surrendered to
the Owner. The third-party offeror shall acquire the Target Shares free and
clear of the Corporation's Repurchase Right under Article V and the
Corporation's First Refusal Right hereunder, but the acquired shares shall
remain subject to (i) the securities law restrictions of paragraph 2.2(a) and
(ii) the market stand-off provisions of paragraph 4.4. In the event Owner does
not effect such sale or disposition of the Target Shares within the specified
thirty (30)-day period, the Corporation's First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with paragraph 6.7.
6.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation (or
its assignees) makes a timely exercise of the First Refusal Right with respect
to a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Corporation delivered within thirty (30) days after the date of the Disposition
Notice, to effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of paragraph 6.4, as if the Corporation
did not exercise the First Refusal Right hereunder; or
(ii) sale to the Corporation (or its assignees) of the
portion of the Target Shares which the Corporation (or its assignees) has
elected to purchase, such sale to be effected in substantial conformity
with the provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (i) above.
6.6 RECAPITALIZATION/MERGER.
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(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Purchased Shares shall be
immediately subject to the Corporation's First Refusal Right hereunder, but only
to the extent the Purchased Shares are at the time covered by such right.
(b) In the event of any of the following transactions:
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to person or persons other
than those who held such securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the State
in which the Corporation is incorporated, or to create a holding company
structure,
the Corporation's First Refusal Right shall remain in full
force and effect and shall apply to the new capital stock or other property
received in exchange for the Purchased Shares in consummation of the transaction
but only to the extent the Purchased Shares are at the time covered by such
right.
6.7 LAPSE. The First Refusal Right under this Article VI shall
lapse and cease to have effect upon the earliest to occur of (i) the first date
on which shares of the Corporation's Common Stock are held of record by more
than five hundred (500) persons, (ii) a determination is made by the
Corporation's Board of Directors that a public market exists for the outstanding
shares of the Corporation's Common Stock, or (iii) a firm commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Corporation's Common
Stock in the aggregate amount of at least $5,000,000. However, the market
stand-off provisions of paragraph 4.4 shall continue to remain in full force and
effect following the lapse of the First Refusal Right hereunder.
VII. ESCROW
7.1 DEPOSIT. Upon issuance, the certificates for any Unvested
Shares purchased hereunder shall be deposited in escrow with the Corporate
Secretary of the Corporation to be held in accordance with the provisions of
this Article VII. Each deposited certificate shall be
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<PAGE> 25
accompanied by a duly-executed Assignment Separate from Certificate in the form
of Exhibit I. The deposited certificates, together with any other assets or
securities from time to time deposited with the Corporate Secretary pursuant to
the requirements of this Agreement, shall remain in escrow until such time or
times as the certificates (or other assets and securities) are to be released or
otherwise surrendered for cancellation in accordance with paragraph 7.3. Upon
delivery of the certificates (or other assets and securities) to the Corporate
Secretary of the Corporation, the Owner shall be issued an instrument of deposit
acknowledging the number of Unvested Shares (or other assets and securities)
delivered in escrow.
7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any stock
dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Unvested Shares shall be immediately
delivered to the Corporate Secretary to be held in escrow under this Article
VII, but only to the extent the Unvested Shares are at the time subject to the
escrow requirements of paragraph 7.1.
7.3 RELEASE/SURRENDER. The Unvested Shares, together with any
other assets or securities held in escrow hereunder, shall be subject to the
following terms and conditions relating to their release from escrow or their
surrender to the Corporation for repurchase and cancellation:
(i) Should the Corporation (or its assignees) elect to
exercise the Repurchase Right under Article V with respect to any Unvested
Shares, then the escrowed certificates for such Unvested Shares (together
with any other assets or securities issued with respect thereto) shall be
delivered to the Corporation concurrently with the payment to the Owner,
in cash or cash equivalent (including the cancellation of any
purchase-money indebtedness), of an amount equal to the aggregate Option
Price for such Unvested Shares, and the Owner shall cease to have any
further rights or claims with respect to such Unvested Shares (or other
assets or securities attributable to such Unvested Shares).
(ii) Should the Corporation (or its assignees) elect to
exercise its First Refusal Right under Article VI with respect to any
vested Target Shares held at the time in escrow hereunder, then the
escrowed certificates for such Target Shares (together with any other
assets or securities attributable thereto) shall, concurrently with the
payment of the paragraph 6.3 purchase price for such Target Shares to the
Owner, be surrendered to the Corporation, and the Owner shall cease to
have any further rights or claims with respect to such Target Shares (or
other assets or securities).
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<PAGE> 26
(iii) Should the Corporation (or its assignees) elect not to
exercise its First Refusal Right under Article VI with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with provisions of paragraph 6.4.
(iv) As the interest of the Optionee in the Unvested Shares
(or any other assets or securities attributable thereto) vests in
accordance with the provisions of Article V, the certificates for such
vested shares (as well as all other vested assets and securities) shall be
released from escrow and delivered to the Owner in accordance with the
following schedule:
a. The initial release of vested shares (or other
vested assets and securities) from escrow shall be effected within
thirty (30) days following the expiration of the initial twelve
(12)- month period measured from the Grant Date.
b. Subsequent releases of vested shares (or other
vested assets and securities) from escrow shall be effected at
semi-annual intervals thereafter, with the first such semi-annual
release to occur eighteen (18) months after the Grant Date.
c. Upon the Optionee's cessation of Service, any
escrowed Purchased Shares (or other assets or securities) in which
the Optionee is at the time vested shall be promptly released from
escrow.
d. Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article V, any Purchased Shares (or other assets or securities) at
the time held in escrow hereunder shall promptly be released to the
Owner as fully-vested shares or other property.
(v) All Purchased Shares (or other assets or securities)
released from escrow in accordance with the provisions of subparagraph
(iv) above shall nevertheless remain subject to (I) the Corporation's
First Refusal Right under Article VI until such right lapses pursuant to
paragraph 6.7, (II) the market standoff provisions of paragraph 4.4 until
such provisions terminate in accordance therewith and (III) the Special
Purchase Right under Article VIII.
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<PAGE> 27
VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION
8.1 GRANT. In connection with the dissolution of the Optionee's
marriage or the legal separation of the Optionee and the Optionee's spouse, the
Corporation shall have the right (the "Special Purchase Right"), exercisable at
any time during the thirty (30)-day period following the Corporation's receipt
of the required Dissolution Notice under paragraph 8.2, to purchase from the
Optionee's spouse, in accordance with the provisions of paragraph 8.3, all or
any portion of the Purchased Shares which would otherwise be awarded to such
spouse in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.2 NOTICE OF DECREE OR AGREEMENT. The Optionee shall promptly
provide the Secretary of the Corporation with written notice (the "Dissolution
Notice") of (i) the entry of any judicial decree or order resolving the property
rights of the Optionee and the Optionee's spouse in connection with their
marital dissolution or legal separation or (ii) the execution of any contract or
agreement relating to the distribution or division of such property rights. The
Dissolution Notice shall be accompanied by a copy of the actual decree of
dissolution or settlement agreement between the Optionee and the Optionee's
spouse which provides for the award to the spouse of one or more Purchased
Shares in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase Right
shall be exercisable by delivery of written notice (the "Purchase Notice") to
the Optionee and the Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date such
purchase is to be effected (such date to be not less than five (5) business
days, nor more than ten (10) business days, after the date of the Purchase
Notice), and the fair market value to be paid for such Purchased Shares. The
Optionee (or the Optionee's spouse, to the extent such spouse has physical
possession of the Purchased Shares) shall, prior to the close of business on the
date specified for the purchase, deliver to the Corporate Secretary of the
Corporation the certificates representing the shares to be purchased, each
certificate to be properly endorsed for transfer. To the extent any of the
shares to be purchased by the Corporation are at the time held in escrow under
Article VII, the certificates for such shares shall be promptly delivered out of
escrow to the Corporation. The Corporation shall, concurrently with the receipt
of the stock certificates, pay to the Optionee's spouse (in cash or cash
equivalents) an amount equal to the fair market value specified for such shares
in the Purchase Notice.
If the Optionee's spouse does not agree with the fair market value
specified for the shares in the Purchase Notice, then the spouse shall promptly
notify the Corporation in writing of such disagreement and the fair market value
of such shares shall thereupon be determined by an appraiser of recognized
standing selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two appraisers shall
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<PAGE> 28
designate a third appraiser of recognized standing whose appraisal shall be
determinative of such value. The cost of the appraisal shall be shared equally
by the Corporation and the Optionee's spouse. The closing shall then be held on
the fifth business day following the completion of such appraisal; provided,
however, that if the appraised value is more than fifteen percent (15%) greater
than the fair market value specified for the shares in the Purchase Notice, the
Corporation shall have the right, exercisable prior to the expiration of such
five (5)-business-day period, to rescind the exercise of the Special Purchase
Right and thereby revoke its election to purchase the shares awarded to the
spouse.
8.4 LAPSE. The Special Purchase Right under this Article VIII
shall lapse and cease to have effect upon the earlier to occur of (i) the first
date on which the First Refusal Right under Article VI lapses or (ii) the
expiration of the thirty (30)-day exercise period specified in paragraph 8.3, to
the extent the Special Purchase Right is not timely exercised in accordance with
such paragraph.
IX. GENERAL PROVISIONS
9.1 ASSIGNMENT. The Corporation may assign its Repurchase Right
under Article V, its First Refusal Right under Article VI and/or its Special
Purchase Right under Article VIII to any person or entity selected by the
Corporation's Board of Directors, including (without limitation) one or more
shareholders of the Corporation.
If the assignee of the Repurchase Right is other than a one hundred
percent (100%) owned subsidiary corporation of the Corporation or the parent
corporation owning one hundred percent (100%) of the Corporation, then such
assignee must make a cash payment to the Corporation, upon the assignment of the
Repurchase Right, in an amount equal to the excess (if any) of (i) the fair
market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Unvested Shares thereunder.
9.2 DEFINITIONS. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered to be a parent corporation of the Corporation, provided each
such 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.
(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a subsidiary of the Corporation, provided each such
corporation (other than
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<PAGE> 29
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.
9.3 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon the Optionee any right to continue in the
Service of the Corporation (or any parent or subsidiary corporation of the
Corporation employing or retaining Optionee) 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 corporation of the Corporation employing or
retaining Optionee) or the Optionee, which rights are hereby expressly reserved
by each, to terminate the Optionee's Service at any time for any reason
whatsoever, with or without cause.
9.4 NOTICES. Any notice required in connection with (i) the
Repurchase Right, the Special Purchase Right or the First Refusal Right or (ii)
the disposition of any Purchased Shares covered thereby shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit in
the United States mail, registered or certified, postage prepaid and addressed
to the party entitled to such notice at the address indicated below such party's
signature line on this Agreement or at such other address as such party may
designate by ten (10) days advance written notice under this paragraph 9.4 to
all other parties to this Agreement.
9.5 NO WAIVER. The failure of the Corporation (or its assignees)
in any instance to exercise the Repurchase Right granted under Article V, or the
failure of the Corporation (or its assignees) in any instance to exercise the
First Refusal Right granted under Article VI, or the failure of the Corporation
(or its assignees) in any instance to exercise the Special Purchase Right
granted under Article VIII shall not constitute a waiver of any other repurchase
rights and/or rights of first refusal that may subsequently arise under the
provisions of this Agreement or any other agreement between the Corporation and
the Optionee or the Optionee's spouse. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
9.6 CANCELLATION OF SHARES. If the Corporation (or its assignees)
shall make available, at the time and place and in the amount and form provided
in this Agreement, the consideration for the Purchased Shares to be repurchased
in accordance with the provisions of this Agreement, then from and after such
time, the person from whom such shares are to be repurchased shall no longer
have any rights as a holder of such shares (other than the right to receive
payment of such consideration in accordance with this Agreement), and such
shares shall be deemed purchased in accordance with the applicable provisions
hereof and the Corporation (or its assignees) shall be deemed the owner and
holder of such shares, whether or not the certificates therefor have been
delivered as required by this Agreement.
X. MISCELLANEOUS PROVISIONS
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<PAGE> 30
10.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
10.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict-of-laws rules.
10.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
10.6 POWER OF ATTORNEY. Optionee's spouse hereby appoints Optionee
his or her true and lawful attorney in fact, for him or her and in his or her
name, place and stead, and for his or her use and benefit, to agree to any
amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Optionee's spouse further gives and
grants unto Optionee as his or her attorney in fact full power and authority to
do and perform every act necessary and proper to be done in the exercise of any
of the foregoing powers as fully as he or she might or could do if personally
present, with full power of substitution and revocation, hereby ratifying and
confirming all that Optionee shall lawfully do and cause to be done by virtue of
this power of attorney.
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<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
CombiChem, Inc.
By:______________________________________
Title:___________________________________
Address: _________________________________________
_________________________________________
_________________________________________
Optionee *
Address: _________________________________________
_________________________________________
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting the Optionee the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms and provisions of such Agreement, including
(specifically) the right of the Corporation (or its assignees) to purchase any
and all interest or right the undersigned may otherwise have in such shares
pursuant to community property laws or other marital property rights.
_________________________________________
Optionee's Spouse
Address: _________________________________________
_________________________________________
- ----------
* I have executed the Section 83(b) election that was attached hereto as an
Exhibit. As set forth in Article III, I understand that I, and not the
Corporation, will be responsible for completing the form and filing the election
with the appropriate office of the Federal and State tax authorities and that if
such filing is not completed within thirty (30) days after the date of this
Agreement, I will not be entitled to the tax benefits provided by Section 83(b).
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<PAGE> 32
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ___________________ hereby sell(s), assign(s) and
transfer(s) unto CombiChem, Inc. (the "Corporation"), ____________________
(____________) shares of the Common Stock of the Corporation standing in his\her
name on the books of the Corporation represented by Certificate No.
_____________________ and do hereby irrevocably constitute and appoint
________________________ as Attorney to transfer the said stock on the books of
the Corporation with full power of substitution in the premises.
Dated: __________________
Signature ________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Corporation to exercise its
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Optionee.
<PAGE> 33
REPURCHASE RIGHTS
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is ________
shares of the common stock of CombiChem, Inc.
(3) The property was issued on ___________ , 19___.
(4) The taxable year in which the election is being made is the calendar year
19___ .
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if
for any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of annual and monthly
installments over a four year period ending on _________, 19___ .
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $_______ per share.
(7) The amount paid for such property is $________ per share.
(8) A copy of this statement was furnished to CombiChem, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed as of: ______________________.
___________________________ ____________________________
Spouse (if any) Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.
EXHIBIT II-1
<PAGE> 34
SPECIAL PROTECTIVE ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL
REVENUE CODE WITH RESPECT TO PROPERTY ACQUIRED UPON EXERCISE OF AN
INCENTIVE STOCK OPTION
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Code. Accordingly, it is the intent of the
Taxpayer to utilize this election to achieve the following tax results:
1. The purpose of this election is to have the alternative
minimum taxable income attributable to the purchased shares measured by the
amount by which the fair market value of such shares at the time of their
transfer to the Taxpayer exceeds the purchase price paid for the shares. In the
absence of this election, such alternative minimum taxable income would be
measured by the spread between the fair market value of the purchased shares and
the purchase price which exists on the various lapse dates in effect for the
forfeiture restrictions applicable to such shares. The election is to be
effective to the full extent permitted under the Internal Revenue Code.
2. Section 421(a)(1) of the Code expressly excludes from income
any excess of the fair market value of the purchased shares over the amount paid
for such shares. Accordingly, this election is also intended to be effective in
the event there is a "disqualifying disposition" of the shares, within the
meaning of Section 421(b) of the Code, which would otherwise render the
provisions of Section 83(a) of the Code applicable at that time. Consequently,
the Taxpayer hereby elects to have the amount of disqualifying disposition
income measured by the excess of the fair market value of the purchased shares
on the date of transfer to the Taxpayer over the amount paid for such shares.
Since Section 421(a) presently applies to the shares which are the subject of
this Section 83(b) election, no taxable income is actually recognized for
regular tax purposes at this time, and no income taxes are payable, by the
Taxpayer as a result of this election.
This form should be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.
NOTE: PAGE 2 SHOULD BE ATTACHED ONLY IF YOU ARE EXERCISING AN INCENTIVE
STOCK OPTION.
<PAGE> 35
EXHIBIT C
1995 STOCK OPTION/STOCK ISSUANCE PLAN
C-1
<PAGE> 36
COMBICHEM, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
Amended as of August 10, 1995
Further Amended as of May 9, 1996
Further Amended as of May 8, 1997
ARTICLE I
GENERAL PROVISIONS
1. PURPOSE
This 1995 Stock Option/Stock Issuance Plan ("Plan") is intended to
promote the interests of CombiChem, Inc. (the "Corporation"), by providing
individuals who render valuable services to the Corporation (or any Parent or
Subsidiary) with the opportunity to acquire ownership interests in the
Corporation so as to encourage them to continue to render services to the
Corporation (or any Parent or Subsidiary).
2. STRUCTURE OF THE PLAN; TERMINOLOGY
This Plan has two separate components: the Option Grant Program set
forth in Article II and the Stock Issuance Program set forth in Article III. For
the purposes of this Plan, any capitalized term shall have the meaning assigned
under Article IV, Section 8 hereof.
3. ADMINISTRATION OF THE PLAN
A. This Plan shall be administered either the Board or a
committee of two (2) or more Board members appointed by the Board to which the
Board has delegated administrative functions under the Plan (the "Plan
Administrator"). Members of any committee to which the Board has delegated any
administrative functions shall serve for such terms as the Board shall determine
and subject to the Board's right of removal. All delegations of authority to any
committee shall be and remain revocable by the Board.
B. The Plan Administrator shall have full power and authority to
implement, interpret and administer the Plan, to establish all such rules and
regulations as it deems appropriate, and to make such determinations under the
Plan and any outstanding option grants or share issuances as it deems 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 outstanding option or share
issuance.
<PAGE> 37
4. SELECTION OF OPTIONEES AND PARTICIPANTS
A. The persons eligible to receive share issuances under the
Stock Issuance Program and/or option grants pursuant to the Option Grant Program
are limited to Employees; non-employee members of the Board of the Corporation
(or of any Parent or Subsidiary); and consultants and other independent
contractors who provide valuable services to the Corporation (or of any Parent
or Subsidiary).
B. The Plan Administrator shall have the absolute discretion and
authority to determine, subject to the provisions of this Plan, the terms of any
option grant or share issuance. In addition to any other matters over which the
Plan Administrator has discretion hereunder, the Plan Administrator shall
determine which, if any, eligible individuals will be granted options in
accordance with Article II of the Plan and which will be issued shares in
accordance with Article III of the Plan. With respect to option grants made
under the Plan, the Plan Administrator will determine 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
granted option is to become exercisable, the vesting schedule (if any)
applicable to shares issued pursuant to the granted options, and the maximum
term for which the option may remain outstanding. With respect to share
issuances under the Stock Issuance Program, in addition to other matters over
which the Plan Administrator has discretion hereunder, the Plan Administrator
will determine the number of shares to be issued to each issuee, the vesting
schedule (if any) applicable to the issued shares, and the consideration to be
paid by the individual for such shares.
C. Common Stock issuable under the Plan, whether under the Option
Grant Program or the Stock Issuance Program, may be subject to such restrictions
on transfer, repurchase rights or other restrictions as may be imposed by the
Plan Administrator and set forth in the documents governing such option or
issuance.
5. STOCK SUBJECT TO THE PLAN
A. Common Stock of the Corporation will be issued under the Plan.
The maximum number of shares of Common Stock which may be issued over the term
of the Plan shall not exceed 6,220,274 shares, subject to adjustment from time
to time in accordance with the provisions of this Section 5 of Article I. The
maximum number of shares of Common Stock which may be issued over the term of
the Plan at any one time shall not exceed 30% of the then outstanding shares of
the Corporation.
B. Shares reserved for issuance under granted options but not in
fact issued pursuant to options granted under the Plan due to the expiration or
termination of the option or the cancellation of the option in accordance with
Section 3 of Article II, will again become available for issuance under the
Plan. Shares actually issued under the Plan, whether pursuant to the exercise of
an option under the Option Grant Program or a stock issuance pursuant to the
Stock Issuance Program, which are subsequently repurchased by the Corporation
will not become available for future issuance.
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<PAGE> 38
C. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock dividend, stock split, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the aggregate number and/or class of shares issuable under
the Plan and (ii) the aggregate number and/or class of shares and the option
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.
6. AMENDMENT OF THE PLAN AND AWARDS
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects whatsoever.
However, no such amendment or modification shall adversely affect the rights and
obligations of an optionee with respect to options at the time outstanding under
the Plan, nor adversely affect the rights of any issuee with respect to Common
Stock issued under the Plan prior to such action unless such optionee or issuee
consents to such amendment. In addition, the Board shall not, without the
approval of the Corporation's shareholders, amend the Plan so as to (i) increase
the maximum number of shares issuable under the Plan (except for adjustments
required under Article I, Section 5.C), (ii) materially increase the benefits
accruing to individuals who participate in the Plan, or (iii) materially modify
the eligibility requirements for participation in the Plan.
B. Options to purchase shares of Common Stock may be granted
under the Option Grant Program and shares of Common Stock may be issued under
the Stock Issuance Program, which are in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under the Option Grant Program or the Stock Issuance Program are held in
escrow until shareholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
date the initial excess issuances are made, then (I) any unexercised options
representing such excess shall terminate and cease to be exercisable and (II)
the Corporation shall promptly refund to the optionees and issuees the option or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.
7. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board.
Options to purchase shares of Common Stock may be granted under the Option Grant
Program and shares of Common Stock may be issued under the Stock Issuance
Program from and after the effective date, provided any shares actually issued
under the Plan are held in escrow until shareholder approval of the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
effective date, then (I) all options shall terminate and cease to be
exercisable, (II) the Corporation shall promptly refund to the optionees and
issuees the option or purchase price paid for any shares issued under the Plan,
together with interest (at the applicable Short Term Federal
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<PAGE> 39
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding, and (III) this
Plan shall terminate in its entirety.
B. Unless sooner terminated by reason of Section 7A of this
Article I, the Plan shall terminate upon the earlier of (i) February 28, 2005,
or (ii) the date on which all shares available for issuance under the Plan have
been issued pursuant to the exercise of options granted under Article II or the
issuance of shares under Article III. The termination of the Plan shall have no
effect on any outstanding options under or shares issued and outstanding under
the Plan, and such securities shall thereafter continue to have force and effect
in accordance with the provisions of the agreements evidencing such options and
issuances.
8. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon any person 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) or of the optionee or the issuee, which rights are hereby expressly
reserved by each, to terminate Service of the optionee or issuee at any time for
any reason whatsoever, with or without cause or to engage in any Corporate
Transaction.
ARTICLE II
OPTION GRANT PROGRAM
1. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by action
of the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or Non-Statutory Options except that individuals who
are not Employees may only be granted Non- Statutory Options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
with the terms and conditions of Sections 1 and 3 of this Article II and each
instrument evidencing an Incentive Option shall, in addition, comply with the
provisions of Section 2 of this Article II.
A. OPTION PRICE.
(I) The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than eighty-five percent (85%) of the Fair Market Value of a share of Common
Stock on the date of the option grant.
(II) The option price per share shall become immediately due
upon exercise of the option and shall, subject to the provisions of Article IV,
Section 1 and the agreement evidencing such grant, be payable in cash or check
drawn to the Corporation's order. Notwithstanding the above, should the
Corporation's outstanding Common Stock be registered
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<PAGE> 40
under Section 12(g) of the 1934 Act, at the time the option is exercised, then
the option price may also be paid as follows:
- in shares of Common Stock held by the optionee for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value; or
- through a special sale and remittance procedure pursuant to which
the optionee provides irrevocable written instructions (I) to a 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, an amount sufficient to cover the aggregate option price
payable for the purchased shares plus all applicable Federal and State
income and employment taxes required to be withheld by the Corporation by
reason of such purchase and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in
order to effect the sale transaction.
Except to the extent such sale and remittance procedure is utilized, payment of
the option price must occur at the time the option is exercised.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under the
Plan 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 stock option agreement evidencing such option. However, no option
granted under the Plan shall have a term in excess of ten (10) years from the
grant date.
C. NO ASSIGNMENT. During the lifetime of the optionee, the option
shall be exercisable only by the optionee and shall not be assignable or
transferable by the optionee otherwise than by will or by the laws of descent
and distribution following the optionee's death.
D. TERMINATION OF SERVICE. The following provisions shall govern
the exercise period applicable to 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 death or Permanent Disability, then the period during which
each outstanding option held by such optionee is to remain exercisable shall be
limited to the three (3)-month period following the date of such cessation of
Service.
(II) Should such Service terminate by reason of Permanent
Disability or should the optionee die while holding one or more outstanding
options, then the period during which each such option is to remain exercisable
shall be limited to the twelve (12)- month period following the date of the
optionee's cessation of Service or death. During the limited exercise period
following the optionee's death, the option may be exercised by the personal
representative of the optionee's estate or by the person or persons to whom the
option
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<PAGE> 41
is transferred pursuant to the optionee's will or in accordance with the laws of
descent and distribution.
(III) The Plan Administrator shall have full power and
authority to extend (either at the time the option is granted or at any time
while the option remains outstanding) the period of time for which the option is
to remain exercisable following the optionee's cessation of Service, from the
limited period otherwise applicable under subsection 1C of this Article II, to
such greater period of time as the Plan Administrator may deem appropriate under
the circumstances.
(IV) Notwithstanding the above no option shall be exercisable
after the specified expiration date of the option term.
(V) Each such option shall, during the applicable limited
exercise period, be exercisable only with respect to the shares for which the
option was exercisable on the date of the optionee's cessation of Service.
E. SHAREHOLDER RIGHTS. An optionee shall not have rights as a
shareholder with respect to any shares subject to an option until such optionee
shall have exercised the option and paid the option price.
2. INCENTIVE OPTIONS
All provisions of the Plan shall be applicable to Incentive Options
granted hereunder and, in addition, the terms and conditions specified in this
Section 2 shall be applicable to Incentive Options granted under the Plan.
Options which are specifically designated as Non- Statutory Options when issued
under the Plan shall not be subject to such terms and conditions set forth
herein.
A. OPTION PRICE.
(I) The option price per share of the Common Stock subject
to an Incentive Option shall in no event be less than one hundred percent (100%)
of the Fair Market Value of a share of Common Stock on the grant date.
(II) If the individual to whom the option is granted is a 10%
Shareholder, then the option price per share shall not be less than one hundred
ten percent (110%) of the Fair Market Value of the Common Stock on the date of
the option grant.
B. DOLLAR LIMITATION. The aggregate Fair Market Value (determined
as of the date or dates of grant) of Common Stock which first becomes
exercisable during any one calendar year under Incentive Options granted to any
Employee under any option plan of the Corporation (or any parent or subsidiary
corporation) shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds options which become exercisable in
the same calendar year, the foregoing limitation on such options shall be
applied
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on the basis of the order in which such options are granted. Any options in
excess of such limitation shall automatically be treated as Non-statutory
Options.
C. TERM OF OPTION FOR 10% SHAREHOLDERS. No option granted to a
10% Shareholder shall have a term in excess of five (5) years from the grant
date.
3. CANCELLATION AND NEW GRANT 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 optionees, the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or a
different numbers of shares of Common Stock but having an option price per share
established at the time of such cancellation and regrant in accordance with the
provisions of this Plan.
ARTICLE III
STOCK ISSUANCE PROGRAM
1. STOCK ISSUANCES
Shares of Common Stock shall be issuable under the Stock Issuance
Program through direct and immediate issuances without any intervening stock
option grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") in a form acceptable to the Plan Administrator,
which form shall be in compliance with the provisions of the Plan.
2. ISSUE PRICE
The purchase price per share shall be fixed by the Plan
Administrator, but in no event shall it be less than eighty-five percent (85%)
of the Fair Market Value of a share of Common Stock at the time of issuance.
3. PAYMENT OF ISSUE PRICE
Except as provided in Article IV, Section 1, shares shall be issued
only in exchange for cash, a check payable to the Corporation, for services
previously rendered to the Corporation (or any Parent or Subsidiary) or such
other lawful consideration as may be acceptable to the Plan Administrator.
ARTICLE IV
MISCELLANEOUS
1. LOANS
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A. The Plan Administrator may assist any optionee or issuee
(other than a non-employee director) in the exercise of one or more options
granted to such optionee under the Option Grant Program or the purchase of one
or more shares to be issued to such issuee under the Stock Issuance Program,
including the satisfaction of any Federal and State income and employment tax
obligations arising therefrom, by (i) authorizing the extension of a loan from
the Corporation to such optionee or issuee, or (ii) permitting the optionee or
issuee to pay the option price or purchase price for the purchased Common Stock
in installments over a period of years.
B. The terms of any loan or installment method of payment
(including the interest rate and terms of repayment) shall be established by the
Plan Administrator in its sole discretion. Loans or installment payments may be
authorized with or without security or collateral. However, any loan made to a
consultant or other non-employee advisor must be secured by property other than
the purchased shares of Common Stock. In all events the maximum credit available
to each optionee or issuee may not exceed the sum of (i) the aggregate option
price or purchase price payable for the purchased shares plus (ii) any Federal
and State income and employment tax liability incurred by the optionee or issuee
in connection with such exercise or purchase.
C. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under the financial assistance program
shall be subject to forgiveness by the Corporation in whole or in part upon such
terms and conditions as the Board in its discretion deems appropriate.
2. VESTING OF SHARES AND REPURCHASE RIGHTS
A. The Plan Administrator, in its absolute discretion, may issue
fully and immediately vested shares of Common Stock, or the Plan Administrator
may impose such vesting requirements as it deems appropriate with the
Corporation retaining a right to repurchase any unvested shares. The terms of
the vesting schedule and of the Corporation's repurchase rights shall be as
determined by the Plan Administrator and set forth in the agreement governing
such issuance. However, no option shall have a term in excess of ten (10) years
measured from the option grant date. In no event, however, may the Plan
Administrator impose a vesting schedule upon any shares issued under the Plan
which results in the vesting of fewer than 20% of the total number of shares
each year beginning one year after the option grant date. In extraordinary
circumstances, the Plan Administrator may grant options or issue shares which
are fully and immediately vested upon issuance.
B. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
holder of unvested Common Stock may have the right to receive by reason of a
stock dividend, stock split, reclassification or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration shall be issued subject to (i) the same vesting and repurchase
limitations applicable to the unvested Common Stock with respect to which it was
paid or arose, and (ii) such escrow arrangements as the Plan Administrator shall
deem appropriate.
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C. No person to whom shares of Common Stock have been issued
pursuant to the Plan may transfer any such shares which have not vested.
Notwithstanding the above, the issuee shall have the right to make a gift of
unvested shares acquired under the Plan to his/her spouse, parents or issue or
to a trust established for such spouse, parents or issue, provided the
transferee of such shares delivers to the Corporation a written agreement to be
bound by all the provisions of the Plan and the Issuance or Stock Purchase
Agreement executed by the issuee at the time of his/her acquisition of the
gifted shares.
3. MARKET STAND-OFF AGREEMENTS
The Plan Administrator may require each person to whom any shares
are issued under this Plan to enter into an agreement which restricts or
prohibits the sale of any stock of the Corporation by such person for a
reasonable period of time following a public offering of any shares of stock by
the Corporation.
4. RIGHT OF FIRST REFUSAL
Until such time as the Corporation's outstanding shares of Common
Stock are first registered under Section 12(g) of the 1934 Act, the Plan
Administrator may subject any shares issued pursuant to the Plan to a right of
first refusal with respect to any proposed disposition of such shares other than
a transfer permitted by Section 2.C of this Article IV. Such right of first
refusal shall be exercisable by the Corporation (or its assignees) in accordance
with the terms and conditions specified in the instrument governing the issuance
of such shares.
5. SECURITIES LAWS; LEGENDS
A. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until the Corporation shall have determined
that there has been full and adequate compliance with all applicable
requirements of the Federal and state securities laws and all other applicable
legal and regulatory requirements.
B. Shares issued under the Plan shall bear such legends as the
Plan Administrator deems necessary or appropriate, including such restrictive
legends as the Plan Administrator shall require to reflect the terms of any
agreement between the issuee and the Corporation.
6. SHAREHOLDER RIGHTS
Subject to the rights of the Corporation set forth herein or in any
other agreement entered into between the Corporation and an issuee of shares
under the Plan, each person to whom shares of Common Stock have been issued
under the Plan shall have all the rights of a shareholder with respect to those
shares whether or not his/her interest in such shares is vested. Accordingly,
the issuee shall have the right to vote such shares and to receive any cash
dividends or other distributions paid or made with respect to such shares.
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7. ACCELERATION
Subject to Section 4.13 of that certain Series C Preferred Stock
Purchase Agreement dated on or about August 17, 1995, the Plan Administrator
may, in its discretion, provide for the automatic acceleration upon a Change of
Control and\or Corporate Transaction of the time at which any option will become
exercisable or for the lapse of any repurchase right tied to vesting. Such
acceleration may be provided for at any time by the Plan Administrator in the
exercise of its discretion, or may be included as a right of the optionee or
issuee in the documents evidencing the rights of the optionee or issuee.
8. DEFINITIONS
The following definitions shall be in effect under this Plan:
A. BOARD shall mean the Board of Directors of the Corporation.
B. COMMON STOCK shall mean the common stock of the Corporation.
C. CORPORATE TRANSACTION shall mean either of the following
stockholder- approved transactions to which the Corporation is a party:
(i) any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation) in which
more than fifty percent (50%) of the Corporation's outstanding voting
stock is transferred to a person or persons different from those who held
the stock 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.
D. 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.
E. FAIR MARKET VALUE per share of Common Stock on any relevant
date under the Plan shall be the value determined in accordance with the
following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any Stock Exchange but is traded on the NASDAQ National Market
System, the Fair Market Value shall be the closing selling price per share
of Common Stock on the date in question, as the price is reported by the
National Association of Securities Dealers through the NASDAQ National
Market System or any successor system. If there is no closing selling
price for the Common
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<PAGE> 46
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 or admitted to
trading 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 nor admitted
to trading on any Stock Exchange nor traded on the NASDAQ National Market
System, then such Fair Market Value shall be determined by the Plan
Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
F. INCENTIVE OPTION shall mean a stock option which satisfies the
requirements of Internal Revenue Code Section 422.
G. NON-STATUTORY OPTION shall mean a stock option not intended to
meet the requirements of Code Section 422.
H. 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.
I. PERMANENT DISABILITY shall have the meaning assigned to such
term in Code Section 22(e)(3).
J. SERVICE shall mean the provision of services to the
Corporation or any Parent or Subsidiary by an individual in the capacity of an
Employee, a non-employee member of the Board or a consultant or independent
contractor.
K. SUBSIDIARY shall mean each corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each such 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.
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L. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation.
9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the issuance of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
10. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise of
any options granted under Article II or the purchase of any shares issued under
Article III shall be subject to the satisfaction of all applicable Federal,
State and local income and employment tax withholding requirements.
11. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under
the Option Grant Program, the issuance of any shares under the Stock Issuance
Program, and the issuance of Common Stock upon the exercise of the option grants
made hereunder 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 Common Stock issued
pursuant to it.
12. INFORMATION TO OPTIONEES AND PARTICIPANTS
The Corporation shall provide financial statements to all optionees
and/or participants at least annually.
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EXHIBIT 10.41
COMBICHEM, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board of Directors of the Corporation has adopted the CombiChem,
Inc. 1995 Stock Option/Stock Issuance Plan (the "Plan") for the purpose of
attracting and retaining the services of persons who contribute to the growth
and financial success of the Corporation.
B. Optionee is a person who the Plan Administrator believes has and
will contribute to the growth and financial success of the Corporation and this
Agreement is executed pursuant to and is intended to carry out the purposes of
the Plan.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of the
grant date (the "Grant Date") specified in the accompanying Notice of Grant of
Stock Option (the "Grant Notice"), a stock option to purchase up to that number
of shares of the Corporation's Common Stock (the "Option Shares") as is
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term at the option price per share (the "Option
Price") specified in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten (10) years
measured from the Grant Date and shall expire at the close of business on the
expiration date (the "Expiration Date") specified in the Grant Notice, unless
sooner terminated in accordance with Paragraph 5, 6 or 17.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee.
4. DATES OF EXERCISE. This option may not be exercised in whole or in
part at any time prior to the time the Plan is approved by the Corporation's
shareholders in accordance with Paragraph 17. Provided such shareholder approval
is
<PAGE> 2
obtained, this option shall thereupon become exercisable for the Option Shares
in one or more installments as is specified in the Grant Notice. As the option
becomes exercisable in one or more installments, the installments shall
accumulate and the option shall remain exercisable for such installments until
the Expiration Date or the sooner termination of the option term under Paragraph
5 or Paragraph 6 of this Agreement.
5. ACCELERATED TERMINATION OF OPTION TERM. Unless extended by the Plan
Administrator in its sole discretion, the option term specified in Paragraph 2
shall terminate (and this option shall cease to be exercisable) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Except as otherwise provided in subparagraph (ii) or (iii)
below, should Optionee cease to remain in Service while this option is
outstanding, then the period for exercising this option shall be reduced
to a three (3)-month period commencing with the date of such cessation of
Service, but in no event shall this option be exercisable at any time
after the Expiration Date. Upon the expiration of such three (3)-month
period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(ii) Should Optionee die while this option is outstanding, 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 law of descent and distribution shall have the right
to exercise this option. Such right shall lapse and this option shall
cease to be exercisable upon the earlier of (A) the expiration of the
twelve (12) month period measured from the date of Optionee's death or (B)
the Expiration Date. Upon the expiration of such twelve (12) month period
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.
(iii) Should Optionee become permanently disabled and cease by
reason thereof to remain in Service while this option is outstanding, then
the Optionee shall have a period of twelve (12) months (commencing with
the date of such cessation of Service) during which to exercise this
option, but in no event shall this option be exercisable at any time after
the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is unable to engage in any substantial gainful activity for
the Corporation or the parent or subsidiary corporation retaining his/her
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services by reason of any medically determinable physical or mental
impairment, which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve
(12) months. Upon the expiration of such limited period of exercisability
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.
(iv) During the limited period of exercisability applicable under
subparagraph (i), (ii) or (iii) above, this option may be exercised for
any or all of the Option Shares for which this option is, at the time of
the Optionee's cessation of Service, exercisable in accordance with the
exercise schedule specified in the Grant Notice and the provisions of
Paragraph 6 of this Agreement.
(v) For purposes of this Paragraph 5 and for all other purposes
under this Agreement:
A. The Optionee shall be deemed to remain in SERVICE for so long
as the Optionee continues to render periodic services to the Corporation or any
parent or subsidiary corporation, whether as an Employee, a non-employee member
of the board of directors, or an independent contractor or consultant.
B. The Optionee shall be deemed to be an EMPLOYEE of the
Corporation and to continue in the Corporation's employ for so long as the
Optionee remains in the employ of the Corporation or one or more of its parent
or subsidiary corporations, 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.
C. A corporation shall be considered to be a SUBSIDIARY
corporation of the Corporation if it is a member of an unbroken chain of
corporations beginning with the Corporation, provided each such corporation in
the chain (other than the last corporation) owns, at the time of determination,
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
D. A corporation shall be considered to be a PARENT corporation
of the Corporation if it is a member of an unbroken chain ending with the
Corporation, provided each such corporation in the chain (other than the
Corporation) owns, at the time of
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determination, stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
6. SPECIAL TERMINATION OF OPTION.
A. This Option, to the extent not previously exercised, shall
terminate and cease to be exercisable upon the consummation of one or more of
the following shareholder-approved transactions (a "Corporate Transaction")
unless this Option is expressly assumed by the successor corporation or parent
thereof:
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation.
B. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES.
A. In the event any change is made to the Corporation's
outstanding Common Stock by reason of any stock split, stock dividend,
combination of shares, exchange of shares, or other change affecting the
outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments shall be made to (i) the total number of Option Shares
subject to this option, (ii) the number of Option Shares for which this option
is to be exercisable from and after each installment date specified in the Grant
Notice and (iii) the Option Price payable per share in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.
B. If this option is to be assumed in connection with a Corporate
Transaction described in Paragraph 6 or is otherwise to remain outstanding, then
this option shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issuable to the Optionee in the consummation of such
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Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Option Price payable per share, provided the aggregate Option Price payable
hereunder shall remain the same.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a shareholder with respect to the Option Shares until
such individual shall have exercised the option and paid the Option Price.
9. MANNER OF EXERCISING OPTION.
A. In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, the Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Execute and deliver to the Secretary of the Corporation a
stock purchase agreement (the "Purchase Agreement") in substantially the
form of Exhibit B to the Grant Notice.
(ii) Pay the aggregate Option Price for the purchased shares in one
or more forms approved under the Plan.
(iii) Furnish to the Corporation appropriate documentation that the
person or persons exercising the option, if other than Optionee, have the
right to exercise this option.
B. Should the Corporation's outstanding Common Stock be
registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "1934 Act") at the time the option is exercised, then the Option
Price may also be paid as follows:
(i) in shares of Common Stock held by the Optionee 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) through a special sale and remittance procedure pursuant to
which the Optionee is to provide irrevocable written instructions (a) to a
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 Option Price
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payable for the purchased shares plus all applicable Federal and State income
and employment taxes required to be withheld by the Corporation by reason of
such purchase and (b) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to effect the sale
transaction.
C. For purposes of this Agreement, the Exercise Date shall be the
date on which the executed Purchase Agreement shall have been delivered to the
Corporation, and the fair market value of a share of Common Stock on any
relevant date shall be determined in accordance with subparagraphs (i) through
(iii) below:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the NASDAQ National Market
System, the fair market value shall be the closing selling price of one
share of Common Stock on the date in question, as such price is reported
by the National Association of Securities Dealers through its NASDAQ
system or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the closing selling price
on the last preceding date for which such quotation exists shall be
determinative of fair market value.
(ii) If the Common Stock is at the time listed or admitted to
trading 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 reported
sale of Common Stock on such exchange on the date in question, then the
fair market value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
(iii) If the Common Stock at the time is neither listed nor admitted
to trading on any stock exchange nor traded in the over-the-counter
market, or if the Plan Administrator determines that the value determined
pursuant to subparagraphs (i) and (ii) above does not accurately reflect
the fair market value of the Common Stock, then such fair market value
shall be determined by the Plan Administrator after taking into account
such factors as the Plan Administrator shall deem appropriate.
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<PAGE> 7
D. As soon after the Exercise Date as practical, the Corporation
shall mail or deliver to Optionee or to the other person or persons exercising
this option a certificate or certificates representing the shares so purchased
and paid for, with the appropriate legends affixed thereto.
E. In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
A. The exercise of this option and the issuance of Option Shares
upon such exercise shall be subject to compliance by the Corporation and the
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange on which shares of the
Corporation's Common Stock may be listed at the time of such exercise and
issuance.
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
12. LIABILITY OF CORPORATION.
A. If the Option Shares covered by this Agreement exceed, as of
the Grant Date, the number of shares of Common Stock which may without
shareholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares, unless shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of Article IV, Section 3, of
the Plan.
B. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
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<PAGE> 8
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee's
signature line on the Grant Notice. All notices shall be deemed to have been
given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.
14. LOANS. The Plan Administrator may, in its absolute discretion and
without any obligation to do so, assist the Optionee in the exercise of this
option by (i) authorizing the extension of a loan to the Optionee from the
Corporation or (ii) permitting the Optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
such loan or installment method of payment (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this option.
16. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Corporation's shareholders within twelve (12) months
after the adoption of the Plan by the Board of Directors. Notwithstanding any
provision of this Agreement to the contrary, this option may not be exercised in
whole or in part until such shareholder approval is obtained. In the event that
such shareholder approval is not obtained, then this option shall thereupon
terminate in its entirety and the Optionee shall have no further rights to
acquire any Option Shares hereunder.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In the
event this option is designated an incentive stock option in the Grant Notice,
the following terms and conditions shall also apply to the grant:
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A. This option shall cease to qualify for favorable tax treatment
as an incentive stock option under the Federal tax laws if (and to the extent)
this option is exercised for one or more Option Shares: (i) more than three (3)
months after the date the Optionee ceases to be an Employee for any reason other
than death or permanent disability (as defined in Paragraph 5) or (ii) more than
one (1) year after the date the Optionee ceases to be an Employee by reason of
permanent disability.
B. Should this option be designated as immediately exercisable in
the Grant Notice, then this option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate fair market value
(determined at the Grant Date) of the Corporation's Common Stock for which this
option would otherwise first become exercisable in such calendar year would,
when added to the aggregate fair market value (determined as of the respective
date or dates of grant) of the Corporation's Common Stock for which this option
or one or more other incentive stock options granted to the Optionee prior to
the Grant Date (whether under the Plan or any other option plan of the
Corporation or its parent or subsidiary corporations) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. To the extent the exercisability of this option is deferred by
reason of the foregoing limitation, the deferred portion will first become
exercisable in the first calendar year or years thereafter in which the One
Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18.B would not
be contravened.
C. Should this option be designated as exercisable in
installments in the Grant Notice, then no installment under this option (whether
annual or monthly) shall qualify for favorable tax treatment as an incentive
stock option under the Federal tax laws if (and to the extent) the aggregate
fair market value (determined at the Grant Date) of the Corporation's Common
Stock for which such installment first becomes exercisable hereunder will, when
added to the aggregate fair market value (determined as of the respective date
or dates of grant) of the Corporation's Common Stock for which one or more other
incentive stock options granted to the Optionee prior to the Grant Date (whether
under the Plan or any other option plan of the Corporation or any parent or
subsidiary corporation) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate.
19. WITHHOLDING. Optionee hereby agrees to make appropriate arrangements
with the Corporation or parent or subsidiary corporation employing Optionee for
the satisfaction of all Federal, State or local income tax withholding
requirements and Federal social security employee tax requirements applicable to
the exercise of this option.
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EXHIBIT 10.42
IMMEDIATELY EXERCISABLE
REPURCHASE RIGHT
RIGHT OF FIRST REFUSAL
COMBICHEM, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this ____ day of ________, 19__, by and among
CombiChem, Inc. (the "Corporation"), ______________________, the holder of a
stock option (the "Optionee") under the Corporation's 1995 Stock Option/Stock
Issuance Plan and _________________, the Optionee's spouse.
I. EXERCISE OF OPTION
1.1 EXERCISE. Optionee hereby purchases _________ shares
("Purchased Shares") of the Corporation's common stock ("Common Stock") pursuant
to that certain option ("Option") granted Optionee on ______________ ("Grant
Dates") to purchase up to _________ shares of the Common Stock ("Total
Purchasable Shares") under the Corporation's 1995 Stock Option/Stock Issuance
Plan (the "Plan") at an option price of $_____ per share ("Option Price").
1.2 PAYMENT. Concurrently with the delivery of this Agreement to
the Corporate Secretary of the Corporation, Optionee shall pay the Option Price
for the Purchased Shares in accordance with the provisions of the agreement
between the Corporation and Optionee evidencing the Option (the "Option
Agreement") and shall deliver whatever additional documents may be required by
the Option Agreement as a condition for exercise, together with a duly-executed
blank Assignment Separate from Certificate (in the form attached hereto as
Exhibit I) with respect to the Purchased Shares.
1.3 DELIVERY OF CERTIFICATES. The certificates representing the
Purchased Shares hereunder shall be held in escrow by the Corporate Secretary of
the Corporation in accordance with the provisions of Article VII.
1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation
actually exercises its repurchase right, rights of first refusal or special
purchase right under this Agreement, Optionee (or any successor in interest)
shall have all the rights of a shareholder (including voting and dividend
rights) with respect to the Purchased Shares, including the Purchased Shares
<PAGE> 2
held in escrow under Article VII, subject, however, to the transfer restrictions
of Article IV.
II. SECURITIES LAW COMPLIANCE
2.1 EXEMPTION FROM REGISTRATION. The Purchased Shares have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
and are accordingly being issued to Optionee in reliance upon the exemption from
such registration provided by Rule 701 of the Securities and Exchange Commission
for stock issuances under compensatory benefit plans such as the Plan. Optionee
hereby acknowledges previous receipt of a copy of the documentation for such
Plan in the form of Exhibit C to the Notice of Grant of Stock Option (the "Grant
Notice") accompanying the Option Agreement.
2.2 RESTRICTED SECURITIES.
A. Optionee hereby confirms that Optionee has been informed that
the Purchased Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless the Purchased Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Optionee hereby acknowledges that Optionee is prepared
to hold the Purchased Shares for an indefinite period and that Optionee is aware
that Rule 144 of the Securities and Exchange Commission issued under the 1933
Act is not presently available to exempt the sale of the Purchased Shares from
the registration requirements of the 1933 Act.
B. Upon the expiration of the ninety (90)-day period immediately
following the date on which the Corporation first becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Purchased Shares, to the extent vested under Article V, may
be sold (without registration) pursuant to the applicable requirements of Rule
144. If Optionee is at the time of such sale an affiliate of the Corporation for
purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the two (2)-year holding period requirement
of the Rule will not be applicable. If Optionee is not at the time of the sale
an affiliate of the Corporation nor was such an affiliate during the preceding
three (3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Purchased Shares held for less than
three (3) years following payment in cash of the Option Price therefor) will be
applicable to the sale.
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<PAGE> 3
C. Should the Corporation not become subject to the reporting
requirements of the Exchange Act, then Optionee may, provided he/she is not at
the time an affiliate of the Corporation (nor was such an affiliate during the
preceding three (3) months), sell the Purchased Shares (without registration)
pursuant to paragraph (k) of Rule 144 after the Purchased Shares have been held
for a period of three (3) years following the payment in cash of the Option
Price for such shares.
2.3 DISPOSITION OF SHARES. Optionee hereby agrees that Optionee
shall make no disposition of the Purchased Shares (other than a permitted
transfer under paragraph 4.1) unless and until there is compliance with all of
the following requirements:
(a) Optionee shall have notified the Corporation of the
proposed disposition and provided a written summary of the terms and
conditions of the proposed disposition.
(b) Optionee shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(c) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that (i) the proposed disposition does not require registration of the
Purchased Shares under the 1933 Act or (ii) all appropriate action
necessary for compliance with the registration requirements of the 1933
Act or of any exemption from registration available under the 1933 Act
(including Rule 144) has been taken.
(d) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that the proposed disposition will not result in the contravention of any
transfer restrictions applicable to the Purchased Shares pursuant to the
provisions of the Commissioner Rules identified in paragraph 2.5.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Article II nor (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee to
whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.4 RESTRICTIVE LEGENDS. In order to reflect the restrictions
on disposition of the Purchased Shares, the stock
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<PAGE> 4
certificates for the Purchased Shares will be endorsed with restrictive legends,
including one or more of the following legends:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
(ii) "The shares represented by this certificate are unvested
and accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated February 24, 1997 between the Corporation and the registered holder of the
shares (or the predecessor in interest to the shares). Such agreement grants
certain repurchase rights and rights of first refusal to the Corporation (or its
assignees) upon the sale, assignment, transfer, encumbrance or other disposition
of the Corporation's shares or upon termination of service with the Corporation.
The Corporation will upon written request furnish a copy of such agreement to
the holder hereof without charge."
III. SPECIAL TAX ELECTION
3.1 SECTION 83(b) ELECTION APPLICABLE TO THE EXERCISE OF A
NON-STATUTORY STOCK OPTION. If the Purchased Shares are acquired hereunder
pursuant to the exercise of a non-statutory stock option, as specified in the
Grant Notice, then the Optionee understands that under Section 83 of the
Internal Revenue Code of 1986, as amended (the "Code"), the excess of the fair
market value of the Purchased Shares on the date any forfeiture restrictions
applicable to such shares lapse over the Option Price paid for such shares will
be reportable as ordinary income on such lapse date. For this purpose, the term
"forfeiture restrictions" includes the right of the Corporation to repurchase
the Purchased Shares pursuant to the Repurchase Right provided under Article V
of this Agreement. Optionee understands that he/she may elect under Section
83(b) of the Code to be taxed at the time the Purchased Shares are acquired
hereunder, rather than when and as such Purchased Shares cease to be subject to
such forfeiture restrictions. Such election must be filed with the Internal
Revenue Service within thirty (30) days after the date of this Agreement. Even
if the fair market value of the Purchased Shares at the date of this Agreement
equals the Option Price paid (and thus no tax is payable), the election must be
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made to avoid adverse tax consequences in the future. THE FORM FOR MAKING THIS
ELECTION IS ATTACHED AS EXHIBIT II HERETO. OPTIONEE UNDERSTANDS THAT FAILURE TO
MAKE THIS FILING WITHIN THE THIRTY (30)-DAY PERIOD WILL RESULT IN THE
RECOGNITION OF ORDINARY INCOME BY THE OPTIONEE AS THE FORFEITURE RESTRICTIONS
LAPSE.
3.2 CONDITIONAL SECTION 83(b) ELECTION APPLICABLE TO THE EXERCISE
OF AN INCENTIVE STOCK OPTION. If the Purchased Shares are acquired hereunder
pursuant to the exercise of an incentive stock option under the Federal tax
laws, as specified in the Grant Notice, then the following tax principles shall
be applicable to the Purchased Shares:
A. For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
B. The excess of (i) the fair market value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over (ii)
the Option Price paid for the Purchased Shares will be includible in the
Optionee's taxable income for alternative minimum tax purposes.
C. If the Optionee makes a disqualifying disposition of the
Purchased Shares, then the Optionee will recognize ordinary income in the
year of such disposition equal in amount to the excess of (i) the fair
market value of the Purchased Shares on the date the Option is exercised
or (if later) on the date any forfeiture restrictions applicable to the
Purchased Shares lapse over (ii) the Option Price paid for the Purchased
Shares. Any additional gain recognized upon the disqualifying disposition
will be either short-term or long-term capital gain depending upon the
period for which the Purchased Shares are held prior to the disposition.
D. For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right provided under Article V
of this Agreement. The term "disqualifying disposition" means any sale or
other disposition(1) of the
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(1) Generally, a disposition of shares purchased under an incentive stock
option includes any transfer of legal title, including a transfer by sale,
exchange or gift, but does not include a transfer to the Optionee's spouse, a
transfer into
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<PAGE> 6
Purchased Shares within two (2) years after the Grant Date or within one
(1) year after the execution date of this Agreement.
E. In the absence of final Treasury Regulations relating to
incentive stock options, it is not certain whether the Optionee may, in
connection with the exercise of the Option for any Purchased Shares at the
time subject to forfeiture restrictions, file a protective election under
Section 83(b) of the Code which would limit (I) the Optionee's alternative
minimum taxable income upon exercise and (II) the Optionee's ordinary
income upon a disqualifying disposition, to the excess of (i) the fair
market value of the Purchased Shares on the date the Option is exercised
over (ii) the Option Price paid for the Purchased Shares. THE APPROPRIATE
FORM FOR MAKING SUCH A PROTECTIVE ELECTION IS ATTACHED AS EXHIBIT II TO
THIS AGREEMENT AND MUST BE FILED WITH THE INTERNAL REVENUE SERVICE WITHIN
THIRTY (30) DAYS AFTER THE DATE OF THIS AGREEMENT. HOWEVER, SUCH ELECTION
IF PROPERLY FILED WILL ONLY BE ALLOWED TO THE EXTENT THE FINAL TREASURY
REGULATIONS PERMIT SUCH A PROTECTIVE ELECTION.
3.3 OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE
RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER
SECTION 83(B), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON HIS/HER BEHALF. This filing should be made by registered
or certified mail, return receipt requested, and Optionee must retain two (2)
copies of the completed form for filing with his or her State and Federal tax
returns for the current tax year and an additional copy for his or her records.
IV. TRANSFER RESTRICTIONS
4.1 RESTRICTION ON TRANSFER. Optionee shall not transfer, assign,
encumber or otherwise dispose of any of the Purchased Shares which are subject
to the Corporation's Repurchase Right under Article V. In addition, Purchased
Shares which are released from the Repurchase Right shall not be transferred,
assigned, encumbered or otherwise made the subject of disposition in
contravention of the Corporation's First Refusal Right under Article VI. Such
restrictions on transfer, however, shall not be
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joint ownership with right of survivorship if Optionee remains one
of the joint owners, a pledge, a transfer by bequest or inheritance or certain
tax free exchanges permitted under the Code.
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<PAGE> 7
applicable to (i) a gratuitous transfer of the Purchased Shares made to the
Optionee's spouse or issue, including adopted children, or to a trust for the
exclusive benefit of the Optionee or the Optionee's spouse or issue, provided
and only if the Optionee obtains the Corporation's prior written consent to such
transfer, (ii) a transfer of title to the Purchased Shares effected pursuant to
the Optionee's will or the laws of intestate succession or (iii) a transfer to
the Corporation in pledge as security for any purchase-money indebtedness
incurred by the Optionee in connection with the acquisition of the Purchased
Shares.
4.2 TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of one of the
permitted transfers specified in paragraph 4.1 must, as a condition precedent to
the validity of such transfer, acknowledge in writing to the Corporation that
such person is bound by the provisions of this Agreement and that the
transferred shares are subject to (i) both the Corporation's Repurchase Right
and the Corporation's First Refusal Right granted hereunder and (ii) the market
stand-off provisions of paragraph 4.4, to the same extent such shares would be
so subject if retained by the Optionee.
4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI and
VII of this Agreement, the term "Owner" shall include the Optionee and all
subsequent holders of the Purchased Shares who derive their chain of ownership
through a permitted transfer from the Optionee in accordance with paragraph 4.1.
4.4 MARKET STAND-OFF PROVISIONS.
A. In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such limitations shall be in effect for such
period of time from and after the effective date of such registration statement
as may be requested by the Corporation or such underwriters; provided, however,
that in no event shall such period exceed one hundred-eighty (180) days. The
limitations of this paragraph 4.4 shall remain in effect for the two-year period
immediately following the effective date of the Corporation's initial public
offering and shall thereafter terminate and cease to have any force or effect.
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<PAGE> 8
B. Owner shall be subject to the market stand-off provisions of
this paragraph 4.4 provided and only if the officers and directors of the
Corporation are also subject to similar arrangements.
C. In the event of any stock dividend, stock split,
recapitalization or other change affecting the Corporation's outstanding Common
Stock effected as a class without receipt of consideration, then any new,
substituted or additional securities distributed with respect to the Purchased
Shares shall be immediately subject to the provisions of this paragraph 4.4, to
the same extent the Purchased Shares are at such time covered by such
provisions.
D. In order to enforce the limitations of this paragraph 4.4, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
V. REPURCHASE RIGHT
5.1 GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date the Optionee ceases for any reason to remain in Service or
(if later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Option Price all or (at the discretion of the
Corporation and with the consent of the Optionee) any portion of the Purchased
Shares in which the Optionee has not acquired a vested interest in accordance
with the vesting provisions of paragraph 5.3 (such shares to be hereinafter
called the "Unvested Shares"). For purposes of this Agreement, the Optionee
shall be deemed to remain in Service for so long as the Optionee continues to
render periodic services to the Corporation or any parent or subsidiary
corporation, whether as an employee, a non-employee member of the board of
directors, or an independent contractor or consultant.
5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one or
more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be
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<PAGE> 9
properly endorsed for transfer. The Corporation shall, concurrently with the
receipt of such stock certificates (either from escrow in accordance with
paragraph 7.3 or from Owner as herein provided), pay to Owner in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness), an
amount equal to the Option Price previously paid for the Unvested Shares which
are to be repurchased.
5.3 TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under paragraph 5.2. In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to any and all Purchased
Shares in which the Optionee vests in accordance with the vesting schedule
specified in the Grant Notice. All Purchased Shares as to which the Repurchase
Right lapses shall, however, continue to be subject to (i) the First Refusal
Right of the Corporation and its assignees under Article VI, (ii) the market
stand-off provisions of paragraph 4.4 and (iii) the Special Purchase Right under
Article VIII.
5.4 AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that the Optionee is a party to one or more other
Stock Purchase Agreements ("Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which the Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which the Optionee would otherwise at the time
be vested, in accordance with the vesting provisions of paragraph 5.3, had all
the Purchased Shares been acquired exclusively under this Agreement.
5.5 FRACTIONAL SHARES. No fractional shares shall be repurchased
by the Corporation. Accordingly, should the Repurchase Right extend to a
fractional share (in accordance with the vesting provisions of paragraph 5.3) at
the time the Optionee ceases Service, then such fractional share shall be added
to any fractional share in which the Optionee is at such time vested in order to
make one whole vested share no longer subject to the Repurchase Right.
5.6 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of
any stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased
Shares shall be immediately subject to
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<PAGE> 10
the Repurchase Right, but only to the extent the Purchased Shares are at the
time covered by such right. Appropriate adjustments to reflect the distribution
of such securities or property shall be made to the number of Purchased Shares
and Total Purchasable Shares hereunder and to the price per share to be paid
upon the exercise of the Repurchase Right in order to reflect the effect of any
such transaction upon the Corporation's capital structure; provided, however,
that the aggregate purchase price shall remain the same.
5.7 CORPORATE TRANSACTION.
A. Except to the extent the Repurchase Right is to be assigned to
the successor corporation (or its parent company), immediately prior to the
consummation of any of the following shareholder-approved transactions (a
"Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation,
the Corporation may exercise the Repurchase Right with respect to the then
Unvested Shares. The Repurchase Right shall automatically lapse with respect to
all Unvested Shares not repurchased hereunder.
B. To the extent the Repurchase Right remains in effect following
such Corporate Transaction, it shall apply to the new capital stock or other
property (including cash) received in exchange for the Shares in consummation of
the Corporate Transaction, but only to the extent the Shares are at the time
covered by such right. Appropriate adjustments shall be made to the price per
share payable upon exercise of the Repurchase Right to reflect the effect of the
Corporate Transaction upon the Corporation's capital structure; provided,
however, that the aggregate Purchase Price shall remain the same.
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VI. RIGHT OF FIRST REFUSAL
6.1 GRANT. The Corporation is hereby granted rights of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which the Optionee has vested in accordance
with the vesting provisions of Article V. For purposes of this Article VI, the
term "transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Purchased Shares intended to be made by the Owner,
but shall not include any of the permitted transfers under paragraph 4.1.
6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires
to accept a bona fide third-party offer for the transfer of any or all of the
Purchased Shares (the shares subject to such offer to be hereinafter called the
"Target Shares"), Owner shall promptly (i) deliver to the Corporate Secretary of
the Corporation written notice (the "Disposition Notice") of the terms and
conditions of the offer, including the purchase price and the identity of the
third-party offeror, and (ii) provide satisfactory proof that the disposition of
the Target Shares to such third-party offeror would not be in contravention of
the provisions set forth in Articles II and IV of this Agreement.
6.3 EXERCISE OF RIGHT. The Corporation shall, for a period of
forty-five (45) days following receipt of the Disposition Notice, have the right
to repurchase any or all of the Target Shares specified in the Disposition
Notice upon the same terms and conditions specified therein or upon terms and
conditions which do not materially vary from those specified therein. Such right
shall be exercisable by delivery of written notice (the "Exercise Notice") to
Owner prior to the expiration of the forty-five (45)-day exercise period. If
such right is exercised with respect to all the Target Shares specified in the
Disposition Notice, then the Corporation (or its assignees) shall effect the
repurchase of the Target Shares, including payment of the purchase price, not
more than ten (10) business days after delivery of the Exercise Notice; and at
such time Owner shall deliver to the Corporation the certificates representing
the Target Shares to be repurchased, each certificate to be properly endorsed
for transfer. To the extent any of the Target Shares are at the time held in
escrow under Article VII, the certificates for such shares shall automatically
be released from escrow and delivered to the Corporation for purchase. Should
the purchase price specified in the Disposition Notice be payable in property
other than cash or evidences of indebtedness, the Corporation (or its assignees)
shall have the right to pay the purchase price in the form of cash equal in
amount to the value of such property. If the Owner and the Corporation (or its
assignees) cannot agree on such cash value within ten (10) days
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after the Corporation's receipt of the Disposition Notice, the valuation shall
be made by an appraiser of recognized standing selected by the Owner and the
Corporation (or its assignees) or, if they cannot agree on an appraiser within
twenty (20) days after the Corporation's receipt of the Disposition Notice, each
shall select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of such value. The cost of such appraisal shall be shared equally
by the Owner and the Corporation. The closing shall then be held on the later of
(i) the tenth business day following delivery of the Exercise Notice or (ii) the
tenth business day after such cash valuation shall have been made.
6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to Owner within forty-five (45) days following the date of the
Corporation's receipt of the Disposition Notice, Owner shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; provided,
however, that any such sale or disposition must not be effected in contravention
of the provisions of Article II of this Agreement. To the extent any of the
Target Shares are at the time held in escrow under Article VII, the certificates
for such shares shall automatically be released from escrow and surrendered to
the Owner. The third-party offeror shall acquire the Target Shares free and
clear of the Corporation's Repurchase Right under Article V and the
Corporation's First Refusal Right hereunder, but the acquired shares shall
remain subject to (i) the securities law restrictions of paragraph 2.2(a) and
(ii) the market stand-off provisions of paragraph 4.4. In the event Owner does
not effect such sale or disposition of the Target Shares within the specified
thirty (30)-day period, the Corporation's First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with paragraph 6.7.
6.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation (or
its assignees) makes a timely exercise of the First Refusal Right with respect
to a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Corporation delivered within thirty (30) days after the date of the Disposition
Notice, to effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in
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<PAGE> 13
the Disposition Notice, but in full compliance with the requirements of
paragraph 6.4, as if the Corporation did not exercise the First Refusal
Right hereunder; or
(ii) sale to the Corporation (or its assignees) of the
portion of the Target Shares which the Corporation (or its assignees) has
elected to purchase, such sale to be effected in substantial conformity
with the provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (i) above.
6.6 RECAPITALIZATION/MERGER.
(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Purchased Shares shall be
immediately subject to the Corporation's First Refusal Right hereunder, but only
to the extent the Purchased Shares are at the time covered by such right.
(b) In the event of any of the following transactions:
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to person or persons other
than those who held such securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the State
in which the Corporation is incorporated, or to create a holding company
structure,
the Corporation's First Refusal Right shall remain in full
force and effect and shall apply to the new capital stock or other property
received in exchange for the Purchased Shares
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<PAGE> 14
in consummation of the transaction but only to the extent the Purchased Shares
are at the time covered by such right.
6.7 LAPSE. The First Refusal Right under this Article VI shall
lapse and cease to have effect upon the earliest to occur of (i) the first date
on which shares of the Corporation's Common Stock are held of record by more
than five hundred (500) persons, (ii) a determination is made by the
Corporation's Board of Directors that a public market exists for the outstanding
shares of the Corporation's Common Stock, or (iii) a firm commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Corporation's Common
Stock in the aggregate amount of at least $5,000,000. However, the market
stand-off provisions of paragraph 4.4 shall continue to remain in full force and
effect following the lapse of the First Refusal Right hereunder.
VII. ESCROW
7.1 DEPOSIT. Upon issuance, the certificates for any Unvested
Shares purchased hereunder shall be deposited in escrow with the Corporate
Secretary of the Corporation to be held in accordance with the provisions of
this Article VII. Each deposited certificate shall be accompanied by a
duly-executed Assignment Separate from Certificate in the form of Exhibit I. The
deposited certificates, together with any other assets or securities from time
to time deposited with the Corporate Secretary pursuant to the requirements of
this Agreement, shall remain in escrow until such time or times as the
certificates (or other assets and securities) are to be released or otherwise
surrendered for cancellation in accordance with paragraph 7.3. Upon delivery of
the certificates (or other assets and securities) to the Corporate Secretary of
the Corporation, the Owner shall be issued an instrument of deposit
acknowledging the number of Unvested Shares (or other assets and securities)
delivered in escrow.
7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any stock
dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Unvested Shares shall be immediately
delivered to the Corporate Secretary to be held in escrow under this Article
VII, but only to the extent the Unvested Shares are at the time subject to the
escrow requirements of paragraph 7.1.
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<PAGE> 15
7.3 RELEASE/SURRENDER. The Unvested Shares, together with any
other assets or securities held in escrow hereunder, shall be subject to the
following terms and conditions relating to their release from escrow or their
surrender to the Corporation for repurchase and cancellation:
(i) Should the Corporation (or its assignees) elect to
exercise the Repurchase Right under Article V with respect to any Unvested
Shares, then the escrowed certificates for such Unvested Shares (together
with any other assets or securities issued with respect thereto) shall be
delivered to the Corporation concurrently with the payment to the Owner,
in cash or cash equivalent (including the cancellation of any
purchase-money indebtedness), of an amount equal to the aggregate Option
Price for such Unvested Shares, and the Owner shall cease to have any
further rights or claims with respect to such Unvested Shares (or other
assets or securities attributable to such Unvested Shares).
(ii) Should the Corporation (or its assignees) elect to
exercise its First Refusal Right under Article VI with respect to any
vested Target Shares held at the time in escrow hereunder, then the
escrowed certificates for such Target Shares (together with any other
assets or securities attributable thereto) shall, concurrently with the
payment of the paragraph 6.3 purchase price for such Target Shares to the
Owner, be surrendered to the Corporation, and the Owner shall cease to
have any further rights or claims with respect to such Target Shares (or
other assets or securities).
(iii) Should the Corporation (or its assignees) elect not to
exercise its First Refusal Right under Article VI with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
disposition in accordance with provisions of paragraph 6.4.
(iv) As the interest of the Optionee in the Unvested Shares
(or any other assets or securities attributable thereto) vests in
accordance with the provisions of Article V, the certificates for such
vested shares (as well as all other vested assets and securities) shall be
released from escrow and delivered to the Owner in accordance with the
following schedule:
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<PAGE> 16
a. The initial release of vested shares (or other
vested assets and securities) from escrow shall be effected within
thirty (30) days following the expiration of the initial twelve
(12)-month period measured from the Grant Date.
b. Subsequent releases of vested shares (or other
vested assets and securities) from escrow shall be effected at
semi-annual intervals thereafter, with the first such semi-annual
release to occur eighteen (18) months after the Grant Date.
c. Upon the Optionee's cessation of Service, any
escrowed Purchased Shares (or other assets or securities) in which
the Optionee is at the time vested shall be promptly released from
escrow.
d. Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article V, any Purchased Shares (or other assets or securities) at
the time held in escrow hereunder shall promptly be released to the
Owner as fully-vested shares or other property.
(v) All Purchased Shares (or other assets or securities)
released from escrow in accordance with the provisions of subparagraph
(iv) above shall nevertheless remain subject to (I) the Corporation's
First Refusal Right under Article VI until such right lapses pursuant to
paragraph 6.7, (II) the market stand-off provisions of paragraph 4.4 until
such provisions terminate in accordance therewith and (III) the Special
Purchase Right under Article VIII.
VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION
8.1 GRANT. In connection with the dissolution of the Optionee's
marriage or the legal separation of the Optionee and the Optionee's spouse, the
Corporation shall have the right (the "Special Purchase Right"), exercisable at
any time during the thirty (30)-day period following the Corporation's receipt
of the required Dissolution Notice under paragraph 8.2, to purchase from the
Optionee's spouse, in accordance with the provisions of paragraph 8.3, all or
any portion of the Purchased Shares which would otherwise be awarded to such
spouse in settlement of any
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<PAGE> 17
community property or other marital property rights such spouse may have in such
shares.
8.2 NOTICE OF DECREE OR AGREEMENT. The Optionee shall promptly
provide the Secretary of the Corporation with written notice (the "Dissolution
Notice") of (i) the entry of any judicial decree or order resolving the property
rights of the Optionee and the Optionee's spouse in connection with their
marital dissolution or legal separation or (ii) the execution of any contract or
agreement relating to the distribution or division of such property rights. The
Dissolution Notice shall be accompanied by a copy of the actual decree of
dissolution or settlement agreement between the Optionee and the Optionee's
spouse which provides for the award to the spouse of one or more Purchased
Shares in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase Right
shall be exercisable by delivery of written notice (the "Purchase Notice") to
the Optionee and the Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date such
purchase is to be effected (such date to be not less than five (5) business
days, nor more than ten (10) business days, after the date of the Purchase
Notice), and the fair market value to be paid for such Purchased Shares. The
Optionee (or the Optionee's spouse, to the extent such spouse has physical
possession of the Purchased Shares) shall, prior to the close of business on the
date specified for the purchase, deliver to the Corporate Secretary of the
Corporation the certificates representing the shares to be purchased, each
certificate to be properly endorsed for transfer. To the extent any of the
shares to be purchased by the Corporation are at the time held in escrow under
Article VII, the certificates for such shares shall be promptly delivered out of
escrow to the Corporation. The Corporation shall, concurrently with the receipt
of the stock certificates, pay to the Optionee's spouse (in cash or cash
equivalents) an amount equal to the fair market value specified for such shares
in the Purchase Notice.
If the Optionee's spouse does not agree with the fair market value
specified for the shares in the Purchase Notice, then the spouse shall promptly
notify the Corporation in writing of such disagreement and the fair market value
of such shares shall thereupon be determined by an appraiser of recognized
standing selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two appraisers shall
designate a third appraiser of recognized standing whose appraisal shall be
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<PAGE> 18
determinative of such value. The cost of the appraisal shall be shared equally
by the Corporation and the Optionee's spouse. The closing shall then be held on
the fifth business day following the completion of such appraisal; provided,
however, that if the appraised value is more than fifteen percent (15%) greater
than the fair market value specified for the shares in the Purchase Notice, the
Corporation shall have the right, exercisable prior to the expiration of such
five (5)-business-day period, to rescind the exercise of the Special Purchase
Right and thereby revoke its election to purchase the shares awarded to the
spouse.
8.4 LAPSE. The Special Purchase Right under this Article VIII
shall lapse and cease to have effect upon the earlier to occur of (i) the first
date on which the First Refusal Right under Article VI lapses or (ii) the
expiration of the thirty (30)-day exercise period specified in paragraph 8.3, to
the extent the Special Purchase Right is not timely exercised in accordance with
such paragraph.
IX. GENERAL PROVISIONS
9.1 ASSIGNMENT. The Corporation may assign its Repurchase Right
under Article V, its First Refusal Right under Article VI and/or its Special
Purchase Right under Article VIII to any person or entity selected by the
Corporation's Board of Directors, including (without limitation) one or more
shareholders of the Corporation.
If the assignee of the Repurchase Right is other than a one hundred
percent (100%) owned subsidiary corporation of the Corporation or the parent
corporation owning one hundred percent (100%) of the Corporation, then such
assignee must make a cash payment to the Corporation, upon the assignment of the
Repurchase Right, in an amount equal to the excess (if any) of (i) the fair
market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Unvested Shares thereunder.
9.2 DEFINITIONS. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered to be a parent corporation of the Corporation, provided each
such 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.
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<PAGE> 19
(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a subsidiary of the Corporation, provided each such
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.
9.3 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon the Optionee any right to continue in the
Service of the Corporation (or any parent or subsidiary corporation of the
Corporation employing or retaining Optionee) 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 corporation of the Corporation employing or
retaining Optionee) or the Optionee, which rights are hereby expressly reserved
by each, to terminate the Optionee's Service at any time for any reason
whatsoever, with or without cause.
9.4 NOTICES. Any notice required in connection with (i) the
Repurchase Right, the Special Purchase Right or the First Refusal Right or (ii)
the disposition of any Purchased Shares covered thereby shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit in
the United States mail, registered or certified, postage prepaid and addressed
to the party entitled to such notice at the address indicated below such party's
signature line on this Agreement or at such other address as such party may
designate by ten (10) days advance written notice under this paragraph 9.4 to
all other parties to this Agreement.
9.5 NO WAIVER. The failure of the Corporation (or its assignees)
in any instance to exercise the Repurchase Right granted under Article V, or the
failure of the Corporation (or its assignees) in any instance to exercise the
First Refusal Right granted under Article VI, or the failure of the Corporation
(or its assignees) in any instance to exercise the Special Purchase Right
granted under Article VIII shall not constitute a waiver of any other repurchase
rights and/or rights of first refusal that may subsequently arise under the
provisions of this Agreement or any other agreement between the Corporation and
the Optionee or the Optionee's spouse. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
9.6 CANCELLATION OF SHARES. If the Corporation (or its assignees)
shall make available, at the time and place and in
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<PAGE> 20
the amount and form provided in this Agreement, the consideration for the
Purchased Shares to be repurchased in accordance with the provisions of this
Agreement, then from and after such time, the person from whom such shares are
to be repurchased shall no longer have any rights as a holder of such shares
(other than the right to receive payment of such consideration in accordance
with this Agreement), and such shares shall be deemed purchased in accordance
with the applicable provisions hereof and the Corporation (or its assignees)
shall be deemed the owner and holder of such shares, whether or not the
certificates therefor have been delivered as required by this Agreement.
X. MISCELLANEOUS PROVISIONS
10.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
10.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict-of-laws rules.
10.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
10.6 POWER OF ATTORNEY. Optionee's spouse hereby appoints Optionee
his or her true and lawful attorney in fact,
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<PAGE> 21
for him or her and in his or her name, place and stead, and for his or her use
and benefit, to agree to any amendment or modification of this Agreement and to
execute such further instruments and take such further actions as may reasonably
be necessary to carry out the intent of this Agreement. Optionee's spouse
further gives and grants unto Optionee as his or her attorney in fact full power
and authority to do and perform every act necessary and proper to be done in the
exercise of any of the foregoing powers as fully as he or she might or could do
if personally present, with full power of substitution and revocation, hereby
ratifying and confirming all that Optionee shall lawfully do and cause to be
done by virtue of this power of attorney.
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<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
CombiChem, Inc.
By: _____________________________________
Title: __________________________________
Address: _________________________________________
_________________________________________
_________________________________________
Optionee *
Address: _________________________________________
_________________________________________
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting the Optionee the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms and provisions of such Agreement, including
(specifically) the right of the Corporation (or its assignees) to purchase any
and all interest or right the undersigned may otherwise have in such shares
pursuant to community property laws or other marital property rights.
-----------------------------------------
Optionee's Spouse
Address: _________________________________________
_________________________________________
- ----------
* I have executed the Section 83(b) election that was attached hereto as an
Exhibit. As set forth in Article III, I understand that I, and not the
Corporation, will be responsible for completing the form and filing the election
with the appropriate office of the Federal and State tax authorities and that if
such filing is not completed within thirty (30) days after the date of this
Agreement, I will not be entitled to the tax benefits provided by Section 83(b).
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<PAGE> 23
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED __________________________________ hereby
sell(s), assign(s) and transfer(s) unto CombiChem, Inc. (the
"Corporation"),__________________________________ (_________) shares of the
Common Stock of the Corporation standing in his\her name on the books of the
Corporation represented by Certificate No. ______________ and do hereby
irrevocably constitute and appoint ___________________________________ as
Attorney to transfer the said stock on the books of the Corporation with full
power of substitution in the premises.
Dated: ______________
Signature _______________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Corporation to exercise its
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Optionee.
<PAGE> 24
REPURCHASE RIGHTS
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
___________ shares of the common stock of CombiChem, Inc.
(3) The property was issued on __________________, 19___.
(4) The taxable year in which the election is being made is the calendar year
19___.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if
for any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of annual and monthly
installments over a four year period ending on ____________, 19___.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $___________ per share.
(7) The amount paid for such property is $____________ per share.
(8) A copy of this statement was furnished to CombiChem, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed as of: _______________________.
- -------------------------------- --------------------------------------
Spouse (if any) Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.
EXHIBIT II-1
<PAGE> 25
SPECIAL PROTECTIVE ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL
REVENUE CODE WITH RESPECT TO PROPERTY ACQUIRED UPON EXERCISE OF AN
INCENTIVE STOCK OPTION
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Code. Accordingly, it is the intent of the
Taxpayer to utilize this election to achieve the following tax results:
1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to the
Taxpayer exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares. The election is to be effective to the
full extent permitted under the Internal Revenue Code.
2. Section 421(a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.
This form should be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.
NOTE: PAGE 2 SHOULD BE ATTACHED ONLY IF YOU ARE EXERCISING AN INCENTIVE
STOCK OPTION.
<PAGE> 1
EXHIBIT 10.43
COMBICHEM, INC.
RESTRICTED STOCK ISSUANCE AGREEMENT
AGREEMENT made as of this _____ day of __________________, 199__, by
and among CombiChem, Inc. (the "Corporation"), _________________
___________________ , a participant ("Participant") in the Corporation's 1995
Stock Option/Stock Issuance Plan (the "Plan") and _________________, the
Participant's spouse.
I. PURCHASE OF SHARES
1.1 PURCHASE. The Participant hereby purchases, and the
Corporation hereby sells to Participant, __________ shares (the "Shares") of the
Corporation's common stock ("Common Stock") at a purchase price of $_________
per share (the "Purchase Price") pursuant to the provisions of the Plan, with a
vesting start date of _______________ ___, 199__ (the "Vesting Start Date").
1.2 PAYMENT. Concurrently with the execution of this Agreement,
the Participant shall deliver to the Corporate Secretary of the Corporation (i)
the aggregate Purchase Price payable for the Shares in cash or cash equivalent
and (ii) a duly-executed blank Assignment Separate from Certificate (in the form
attached hereto as Exhibit A).
1.3 DELIVERY OF CERTIFICATES. The certificates representing the
Shares hereunder shall be held in escrow by the Secretary of the Corporation as
provided in Article VII hereof.
1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation
actually exercises its repurchase right, rights of first refusal or special
purchase right under this Agreement, Participant (or any successor in interest)
shall have all the rights of a shareholder (including voting and dividend
rights) with respect to the Shares, including the Shares held in escrow under
Article VII, subject, however, to the transfer restrictions of Article IV.
II. SECURITIES LAW COMPLIANCE
2.1 EXEMPTION FROM REGISTRATION. The Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
are accordingly being issued to Participant in reliance upon the exemption from
such registration provided by Rule 701 of the Securities and Exchange Commission
for stock issuances under compensatory benefit plans such as the Plan.
Participant hereby acknowledges receipt of a copy of the
<PAGE> 2
documentation for such Plan in the form of Exhibit B attached hereto.
2.2 RESTRICTED SECURITIES.
A. Participant hereby confirms that Participant has been
informed that the Shares are restricted securities under the 1933 Act and may
not be resold or transferred unless the Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Participant hereby acknowledges that Participant is
prepared to hold the Shares for an indefinite period and that Participant is
aware that Rule 144 of the Securities and Exchange Commission issued under the
1933 Act is not presently available to exempt the sale of the Shares from the
registration requirements of the 1933 Act.
B. Upon the expiration of the ninety (90)-day period
immediately following the date on which the Corporation first becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Shares, to the extent vested under Article V, may be
sold (without registration) pursuant to the applicable requirements of Rule 144.
If Participant is at the time of such sale an affiliate of the Corporation for
purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the two-year holding period requirement of
the Rule will not be applicable. If Participant is not at the time of the sale
an affiliate of the Corporation nor was such an affiliate during the preceding
three (3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Shares held for less than three (3)
years following payment in cash of the Purchase Price therefor) will be
applicable to the sale.
C. Should the Corporation not become subject to the
reporting requirements of the Exchange Act, then Participant may, provided
he/she is not at the time an affiliate of the Corporation (nor was such an
affiliate during the preceding three (3) months), sell the Shares (without
registration) pursuant to paragraph (k) of Rule 144 after the Shares have been
held for a period of three (3) years following the payment in cash of the
Purchase Price for such shares.
2.3 DISPOSITION OF SHARES. Participant hereby agrees that
Participant shall make no disposition of the Shares (other than a permitted
transfer under paragraph 4.1) unless and until there is compliance with all of
the following requirements:
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<PAGE> 3
(a) Participant shall have notified the Corporation of the
proposed disposition and provided a written summary of the terms and
conditions of the proposed disposition.
(b) Participant shall have complied with all requirements of
this Agreement applicable to the disposition of the Shares.
(c) Participant shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that (i) the proposed disposition does not require registration of the
Shares under the 1933 Act or (ii) all appropriate action necessary for
compliance with the registration requirements of the 1933 Act or of any
exemption from registration available under the 1933 Act (including Rule
144) has been taken.
(d) Participant shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation,
that the proposed disposition will not result in the contravention of any
transfer restrictions applicable to the Shares pursuant to the provisions
of the Commissioner Rules identified in paragraph 2.5.
The Corporation shall not be required (i) to transfer on its books
any Shares which have been sold or transferred in violation of the provisions of
this Article II nor (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of this Agreement.
2.4 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Shares, the stock certificates for the Shares will be
endorsed with restrictive legends, including one or more of the following
legends:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be
sold or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a 'no action' letter of the
Securities and Exchange Commission with respect to such sale or offer, or
(c) satisfactory assurances to the Corporation that registration under
such Act is not required with respect to such sale or offer."
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(ii) "The shares represented by this certificate are unvested
and accordingly may not be sold, assigned, transferred, encumbered, or in
any manner disposed of except in conformity with the terms of a written
agreement dated , 19 , between the Corporation and the registered holder
of the shares (or the predecessor in interest to the shares). Such
agreement grants certain repurchase rights and rights of first refusal to
the Corporation (or its assignees) upon the sale, assignment, transfer,
encumbrance or other disposition of the Corporation's shares or upon
termination of service with the Corporation. The Corporation will upon
written request furnish a copy of such agreement to the holder hereof
without charge."
III. SPECIAL TAX PROVISIONS
3.1 SECTION 83(B) ELECTION. The Participant understands that under
Section 83 of the Code, the excess of the fair market value of the Shares on the
date any forfeiture restrictions applicable to such shares lapse over the
Purchase Price for such Shares will be reportable as ordinary income on such
lapse date. For this purpose, the term "forfeiture restrictions" includes the
right of the Corporation to repurchase the Shares pursuant to the Repurchase
Right provided under Article V of this Agreement. Participant understands that
he/she may elect under Section 83(b) of the Internal Revenue Code of 1986, as
amended (the "Code") to be taxed at the time the Shares are acquired hereunder,
rather than when and as such Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of this Agreement. Even if the fair
market value of the Shares on the date of this Agreement equals the Purchase
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as Exhibit C hereto. Participant understands that failure to make this
filing within the thirty (30)-day period will result in the recognition of
ordinary income by the Participant as the forfeiture restrictions lapse.
3.2 PARTICIPANT ACKNOWLEDGES THAT IT IS PARTICIPANT'S SOLE
RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER
SECTION 83(B), EVEN IF PARTICIPANT REQUESTS THE CORPORATION OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON HIS/HER BEHALF. This filing should be
made by registered or certified mail, return receipt requested, and Participant
must retain two (2) copies of the completed form for filing with his/her State
and Federal tax returns for the current tax year and an additional copy for
his/her personal records.
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IV. TRANSFER RESTRICTIONS
4.1 RESTRICTION ON TRANSFER. Participant shall not transfer,
assign, encumber or otherwise dispose of any of the Shares which are subject to
the Corporation's Repurchase Right under Article V. In addition, Shares which
are released from the Repurchase Right shall not be transferred, assigned,
encumbered or otherwise made the subject of disposition in contravention of the
Corporation's First Refusal Right under Article VI. Such restrictions on
transfer, however, shall not be applicable to (i) a gratuitous transfer of the
Shares made to the Participant's spouse or issue, including adopted children, or
to a trust for the exclusive benefit of the Participant or the Participant's
spouse or issue, provided and only if the Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the Shares
effected pursuant to the Participant's will or the laws of intestate succession
or (iii) a transfer to the Corporation in pledge as security for any
purchase-money indebtedness incurred by the Participant in connection with the
acquisition of the Shares.
4.2 TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Shares are transferred by means of one of the permitted
transfers specified in paragraph 4.1 must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Corporation that such
person is bound by the provisions of this Agreement and that the transferred
shares are subject to (i) both the Corporation's Repurchase Right and the
Corporation's First Refusal Right granted hereunder and (ii) the market
stand-off provisions of paragraph 4.4, to the same extent such Shares would be
so subject if retained by the Participant.
4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI and
VII of this Agreement, the term "Owner" shall include the Participant and all
subsequent holders of the Shares who derive their chain of ownership through a
permitted transfer from the Participant in accordance with paragraph 4.1.
4.4 MARKET STAND-OFF PROVISIONS.
A. In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Shares without the prior written consent of the Corporation or
its underwriters. Such limitations shall be in effect for such period of time
from
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and after the effective date of such registration statement as may be requested
by the Corporation or such underwriters; provided, however, that in no event
shall such period exceed one hundred-eighty (180) days. The limitations of this
paragraph 4.4 shall remain in effect for the two-year period immediately
following the effective date of the Corporation's initial public offering and
shall thereafter terminate and cease to have any force or effect.
B. Owner shall be subject to the market stand-off provisions of
this paragraph 4.4 provided and only if the officers and directors of the
Corporation are also subject to similar arrangements.
C. In the event of any stock dividend, stock split,
recapitalization or other change affecting the Corporation's outstanding Common
Stock effected without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Shares shall be
immediately subject to the provisions of this paragraph 4.4, to the same extent
the Shares are at such time covered by such provisions.
D. In order to enforce the limitations of this paragraph 4.4, the
Corporation may impose stop-transfer instructions with respect to the Shares
until the end of the applicable stand-off period.
V. REPURCHASE RIGHT
5.1 GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date the Participant ceases for any reason to remain in Service or
(if later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Purchase Price all or (at the discretion of the
Corporation and with the consent of the Participant) any portion of the Shares
in which the Participant has not acquired a vested interest in accordance with
the vesting provisions of paragraph 5.3 below (such shares to be hereinafter
called the "Unvested Shares"). For purposes of this Agreement, the Participant
shall be deemed to remain in Service for so long as the Participant continues to
render periodic services to the Corporation or any parent or subsidiary
corporation, whether as an employee, a non-employee member of the board of
directors, or an independent contractor or consultant.
5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
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repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one or
more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with paragraph 7.3 or from Owner as herein
provided), pay to Owner in cash or cash equivalents (including the cancellation
of any purchase-money indebtedness), an amount equal to the Purchase Price
previously paid for the Unvested Shares which are to be repurchased.
5.3 TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under paragraph 5.2. In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to any and all Shares in
which the Participant vests in accordance with the schedule below. Accordingly,
as the Participant continues in Service, the Participant shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, the Shares in
installments in accordance with the following provisions:
(i) The Participant shall not acquire any vested interest
in, nor shall the Repurchase Right lapse with respect to, any Shares
unless and until the Participant has completed twelve (12) months of
Service measured from the Vesting Start Date.
(ii) Upon the completion of the twelve (12) month Service
period specified in subparagraph (i) above, the Participant shall acquire
a vested interest in, and the Repurchase Right shall lapse with respect
to, 25% of the Shares.
(iii) The Participant shall acquire a vested interest in, and
the Repurchase Right shall lapse with respect to, the remaining Shares in
a series of successive equal monthly installments over each of the next
thirty-six (36) months of Service completed by the Participant after the
initial vesting date under subparagraph (ii) above.
All Shares as to which the Repurchase Right lapses shall, however,
continue to be subject to (i) the First Refusal Right and (ii) the market
stand-off provisions of paragraph 4.4.
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5.4 FRACTIONAL SHARES. No fractional shares shall be repurchased
by the Corporation. Accordingly should the Repurchase Right extend to a
fractional share (in accordance with the vesting computation provisions of
paragraph 5.3) at the time the Participant ceases Service, then such fractional
share shall be added to any fractional share in which the Participant is at such
time vested in order to make one whole vested share no longer subject to the
Repurchase Right.
5.5 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of
any stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Shares shall
be immediately subject to the Repurchase Right, but only to the extent the
Shares are at the time covered by such right. Appropriate adjustments to reflect
the distribution of such securities or property shall be made to the number of
Shares at the time subject to the Repurchase Right hereunder and to the price
per share to be paid upon the exercise of the Repurchase Right in order to
reflect the effect of any such transaction upon the Corporation's capital
structure; provided, however, that the aggregate Purchase Price shall remain
the same.
5.6 CORPORATE TRANSACTION.
A. Except to the extent the Repurchase Right is to be assigned to
the successor corporation (or its parent company), immediately prior to the
consummation of any of the following shareholder-approved transactions (a
"Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or
(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting
in concert acquire, in the aggregate, more than 50% of the outstanding
shares of the stock of the Corporation,
the Corporation may exercise the Repurchase Right with respect to the then
Unvested Shares. The Repurchase Right shall automatically lapse with respect to
all Unvested Shares not repurchased hereunder.
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B. To the extent the Repurchase Right remains in effect following
such Corporate Transaction, it shall apply to the new capital stock or other
property (including cash) received in exchange for the Shares in consummation of
the Corporate Transaction, but only to the extent the Shares are at the time
covered by such right. Appropriate adjustments shall be made to the price per
share payable upon exercise of the Repurchase Right to reflect the effect of the
Corporate Transaction upon the Corporation's capital structure; provided,
however, that the aggregate Purchase Price shall remain the same.
VI. RIGHT OF FIRST REFUSAL
6.1 GRANT. The Corporation is hereby granted rights of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which the Optionee has vested in accordance
with the vesting provisions of Article V. For purposes of this Article VI, the
term "transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Purchased Shares intended to be made by the Owner,
but shall not include any of the permitted transfers under paragraph 4.1.
6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires
to accept a bona fide third-party offer for the transfer of any or all of the
Purchased Shares (the shares subject to such offer to be hereinafter called the
"Target Shares"), Owner shall promptly (i) deliver to the Corporate Secretary of
the Corporation written notice (the "Disposition Notice") of the terms and
conditions of the offer, including the purchase price and the identity of the
third-party offeror, and (ii) provide satisfactory proof that the disposition of
the Target Shares to such third-party offeror would not be in contravention of
the provisions set forth in Articles II and IV of this Agreement.
6.3 EXERCISE OF RIGHT. The Corporation shall, for a period of
forty-five (45) days following receipt of the Disposition Notice, have the right
to repurchase any or all of the Target Shares specified in the Disposition
Notice upon the same terms and conditions specified therein or upon terms and
conditions which do not materially vary from those specified therein. Such right
shall be exercisable by delivery of written notice (the "Exercise Notice") to
Owner prior to the expiration of the forty-five (45)-day exercise period. If
such right is exercised with respect to all the Target Shares specified in the
Disposition Notice, then the Corporation (or its assignees) shall effect the
repurchase of the Target Shares, including payment of the purchase price, not
more than ten (10) business days after delivery of the Exercise Notice; and at
such time Owner shall deliver to the Corporation the certificates representing
the
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Target Shares to be repurchased, each certificate to be properly endorsed for
transfer. To the extent any of the Target Shares are at the time held in escrow
under Article VII, the certificates for such shares shall automatically be
released from escrow and delivered to the Corporation for purchase. Should the
purchase price specified in the Disposition Notice be payable in property other
than cash or evidences of indebtedness, the Corporation (or its assignees) shall
have the right to pay the purchase price in the form of cash equal in amount to
the value of such property. If the Owner and the Corporation (or its assignees)
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by the Owner and the Corporation (or its
assignees) or, if they cannot agree on an appraiser within twenty (20) days
after the Corporation's receipt of the Disposition Notice, each shall select an
appraiser of recognized standing and the two appraisers shall designate a third
appraiser of recognized standing, whose appraisal shall be determinative of such
value. The cost of such appraisal shall be shared equally by the Owner and the
Corporation. The closing shall then be held on the later of (i) the tenth
business day following delivery of the Exercise Notice or (ii) the tenth
business day after such cash valuation shall have been made.
6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to Owner within forty-five (45) days following the date of the
Corporation's receipt of the Disposition Notice, Owner shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; provided,
however, that any such sale or disposition must not be effected in contravention
of the provisions of Article II of this Agreement. To the extent any of the
Target Shares are at the time held in escrow under Article VII, the certificates
for such shares shall automatically be released from escrow and surrendered to
the Owner. The third-party offeror shall acquire the Target Shares free and
clear of the Corporation's Repurchase Right under Article V and the
Corporation's First Refusal Right hereunder, but the acquired shares shall
remain subject to (i) the securities law restrictions of paragraph 2.2(a) and
(ii) the market stand-off provisions of paragraph 4.4. In the event Owner does
not effect such sale or disposition of the Target Shares within the specified
thirty (30)-day period, the Corporation's First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with paragraph 6.7.
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6.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation (or
its assignees) makes a timely exercise of the First Refusal Right with respect
to a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Corporation delivered within thirty (30) days after the date of the Disposition
Notice, to effect the sale of the Target Shares pursuant to one of the following
alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of paragraph 6.4, as if the Corporation
did not exercise the First Refusal Right hereunder; or
(ii) sale to the Corporation (or its assignees) of the
portion of the Target Shares which the Corporation (or its assignees) has
elected to purchase, such sale to be effected in substantial conformity
with the provisions of paragraph 6.3.
Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (i) above.
6.6 RECAPITALIZATION/MERGER.
(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Purchased Shares shall be
immediately subject to the Corporation's First Refusal Right hereunder, but only
to the extent the Purchased Shares are at the time covered by such right.
(b) In the event of any of the following transactions:
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to person or persons
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other than those who held such securities immediately prior to the merger,
or
(iv) any transaction effected primarily to change the State
in which the Corporation is incorporated, or to create a holding company
structure,
the Corporation's First Refusal Right shall remain in full
force and effect and shall apply to the new capital stock or other property
received in exchange for the Purchased Shares in consummation of the transaction
but only to the extent the Purchased Shares are at the time covered by such
right.
6.7 LAPSE. The First Refusal Right under this Article VI shall
lapse and cease to have effect upon the earliest to occur of (i) the first date
on which shares of the Corporation's Common Stock are held of record by more
than five hundred (500) persons, (ii) a determination is made by the
Corporation's Board of Directors that a public market exists for the outstanding
shares of the Corporation's Common Stock, or (iii) a firm commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Corporation's Common
Stock in the aggregate amount of at least $5,000,000. However, the market
stand-off provisions of paragraph 4.4 shall continue to remain in full force and
effect following the lapse of the First Refusal Right hereunder.
VII. ESCROW
7.1 DEPOSIT. Upon issuance, the certificates for any Unvested
Shares purchased hereunder shall be deposited in escrow with the Corporation to
be held in accordance with the provisions of this Article VII. Each deposited
certificate shall be accompanied by a duly executed Assignment Separate from
Certificate in the form of Exhibit A. The deposited certificates, together with
any other assets or securities from time to time deposited with the Corporation
pursuant to the requirements of this Agreement, shall remain in escrow until
such time or times as the certificates (or other assets and securities) are to
be released or otherwise surrendered for cancellation in accordance with
paragraph 7.3. Upon delivery of the certificates (or other assets and
securities) to the Corporation, the Owner shall be issued an instrument of
deposit acknowledging the number of Unvested Shares (or other assets and
securities) delivered in escrow to the Corporation.
7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any stock
dividend, stock
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split, recapitalization or other change affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration or in the
event of a Corporate Transaction, any new, substituted or additional securities
or other property which is by reason of such transaction distributed with
respect to the Unvested Shares shall be immediately delivered to the Corporation
to be held in escrow under this Article VII, but only to the extent the Unvested
Shares are at the time subject to the escrow requirements of paragraph 7.1.
7.3 RELEASE/SURRENDER. The Unvested Shares, together with any
other assets or securities held in escrow hereunder, shall be subject to the
following terms and conditions relating to their release from escrow or their
surrender to the Corporation for repurchase and cancellation:
(i) Should the Corporation (or its assignees) elect to
exercise the Repurchase Right under Article V with respect to any Unvested
Shares, then the escrowed certificates for such Unvested Shares (together
with any other assets or securities issued with respect thereto) shall be
delivered to the Corporation, concurrently with the payment to the Owner,
in cash or cash equivalent (including the cancellation of any
purchase-money indebtedness), of an amount equal to the aggregate Purchase
Price for such Unvested Shares, and the Owner shall cease to have any
further rights or claims with respect to such Unvested Shares (or other
assets or securities attributable to such Unvested Shares).
(ii) Should the Corporation (or its assignees) elect to
exercise its First Refusal Right under Article VI with respect to any
vested Target Shares held at the time in escrow hereunder, then the
escrowed certificates for such Target Shares (together with any other
assets or securities attributable thereto) shall, concurrently with the
payment of the paragraph 6.3 purchase price for such Target Shares to the
Owner, be surrendered to the Corporation, and the Owner shall cease to
have any further rights or claims with respect to such Target Shares (or
other assets or securities).
(iii) Should the Corporation (or its assignees) elect not to
exercise its First Refusal Right under Article VI with respect to any
Target Shares held at the time in escrow hereunder, then the escrowed
certificates for such Target Shares (together with any other assets or
securities attributable thereto) shall be surrendered to the Owner for
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disposition in accordance with the provisions of paragraph 6.4.
(iv) As the interest of the Participant in the Unvested
Shares (or any other assets or securities attributable thereto) vests in
accordance with the provisions of Article V, the certificates for such
vested shares (as well as all other vested assets and securities) shall be
released from escrow and delivered to the Owner in accordance with the
following schedule:
a. The initial release of vested shares (or other
vested assets and securities) from escrow shall be effected within
thirty (30) days following the expiration of the initial twelve
(12)-month period measured from the initial vesting date under
paragraph 5.3.
b. Subsequent releases of vested shares (or other
vested assets and securities) from escrow shall be effected at
semi-annual intervals thereafter, with the first such semi-annual
release to occur six (6) months after the initial paragraph 5.3
vesting date.
c. Upon the Participant's cessation of Service, any
escrowed Shares (or other assets or securities) in which the
Participant is at the time vested shall be promptly released from
escrow.
d. Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article V, the Shares (or other assets or securities) at the time
held in escrow hereunder shall promptly be released to the Owner as
fully-vested shares or other property.
(v) All Shares (or other assets or securities) released from
escrow in accordance with the provisions of subparagraph (iv) above shall
nevertheless remain subject to (I) the Corporation's First Refusal Right
under Article VI until such right lapses pursuant to paragraph 6.7, (II)
the market stand-off provisions of paragraph 4.4 until such provisions
terminate in accordance therewith and (III) the Special Purchase Right
under Article VIII.
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VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION
8.1 GRANT. In connection with the dissolution of the Participant's
marriage or the legal separation of the Participant and the Participant's
spouse, the Corporation shall have the right (the "Special Purchase Right"),
exercisable at any time during the thirty (30)-day period following the
Corporation's receipt of the required Dissolution Notice under paragraph 8.2, to
purchase from the Participant's spouse, in accordance with the provisions of
paragraph 8.3, all or any portion of the Shares which would otherwise be awarded
to such spouse in settlement of any community property or other marital property
rights such spouse may have in such shares.
8.2 NOTICE OF DECREE OR AGREEMENT. The Participant shall promptly
provide the Secretary of the Corporation with written notice (the "Dissolution
Notice") of (i) the entry of any judicial decree or order resolving the property
rights of the Participant and the Participant's spouse in connection with their
marital dissolution or legal separation or (ii) the execution of any contract or
agreement relating to the distribution or division of such property rights. The
Dissolution Notice shall be accompanied by a copy of the actual decree of
dissolution or settlement agreement between the Participant and the
Participant's spouse which provides for the award to the spouse of one or more
Shares in settlement of any community property or other marital property rights
such spouse may have in such shares.
8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase Right
shall be exercisable by delivery of the Purchase Notice to the Participant and
the Participant's spouse within thirty (30) days after the Corporation's receipt
of the Dissolution Notice. The Purchase Notice shall indicate the number of
shares to be purchased by the Corporation, the date such purchase is to be
effected (such date to be not less than five (5) business days, nor more than
ten (10) business days, after the date of the Purchase Notice), and the fair
market value to be paid for such Shares. The Participant (or the Participant's
spouse, to the extent such spouse has physical possession of the Shares) shall,
prior to the close of business on the date specified for the purchase, deliver
to the Corporate Secretary of the Corporation the certificates representing the
shares to be purchased, each certificate to be properly endorsed for transfer.
To the extent any of the shares to be purchased by the Corporation are at the
time held in escrow under Article VII, the certificates for such shares shall be
promptly delivered out of escrow to the Corporation. The Corporation shall,
concurrently with the receipt of the stock certificates, pay to the
Participant's spouse (in cash or cash equivalents) an amount
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equal to the fair market value specified for such shares in the Purchase Notice.
If the Participant's spouse does not agree with the fair
market value specified for the shares in the Purchase Notice, then the spouse
shall promptly notify the Corporation in writing of such disagreement and the
fair market value of such shares shall thereupon be determined by an appraiser
of recognized standing selected by the Corporation and the spouse. If they
cannot agree on an appraiser within twenty (20) days after the date of the
Purchase Notice, each shall select an appraiser of recognized standing, and the
two appraisers shall designate a third appraiser of recognized standing whose
appraisal shall be determinative of such value. The cost of the appraisal shall
be shared equally by the Corporation and the Participant's spouse. The closing
shall then be held on the fifth business day following the completion of such
appraisal; provided, however, that if the appraised value is more than fifteen
percent (15%) greater than the fair market value specified for the shares in the
Purchase Notice, the Corporation shall have the right, exercisable prior to the
expiration of such five (5) business-day period, to rescind the exercise of the
Special Purchase Right and thereby revoke its election to purchase the shares
awarded to the spouse.
8.4 LAPSE. The Special Purchase Right under this Article VIII
shall lapse and cease to have effect upon the earlier to occur of (i) the first
date on which the First Refusal Right under Article VI lapses or (ii) the
expiration of the thirty (30)-day exercise period specified in paragraph 8.3, to
the extent the Special Purchase Right is not timely exercised in accordance with
such paragraph.
IX. GENERAL PROVISIONS
9.1 ASSIGNMENT. The Corporation may assign its Repurchase Right
under Article V, its First Refusal Right under Article VI and/or its Special
Purchase Right under Article VIII to any person or entity selected by the
Corporation's Board of Directors, including (without limitation) one or more
shareholders of the Corporation.
If the assignee of the Repurchase Right is other than a one
hundred percent (100%) owned subsidiary corporation of the Corporation or the
parent corporation owning one hundred percent (100%) of the Corporation, then
such assignee must make a cash payment to the Corporation, upon the assignment
of the Repurchase Right, in an amount equal to the excess (if any) of (i) the
fair market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for Unvested
Shares thereunder.
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<PAGE> 17
9.2 DEFINITIONS. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered to be a PARENT corporation of the Corporation, provided each
such 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.
(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a SUBSIDIARY of the Corporation, provided each such
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.
9.3 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon the Participant any right to continue in the
Service of the Corporation (or any parent or subsidiary corporation employing or
retaining Participant) 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 corporation employing or retaining Participant) or the Participant,
which rights are hereby expressly reserved by each, to terminate the
Participant's Service at any time for any reason whatsoever, with or without
cause.
9.4 NOTICES. Any notice required in connection with (i) the
Repurchase Right, the Special Purchase Right or the First Refusal Right or (ii)
the disposition of any Shares covered thereby shall be given in writing and
shall be deemed effective upon personal delivery or upon deposit in the United
States mail, registered or certified, postage prepaid and addressed to the party
entitled to such notice at the address indicated below such party's signature
line on this Agreement or at such other address as such party may designate by
ten (10) days advance written notice under this paragraph 9.4 to all other
parties to this Agreement.
9.5 NO WAIVER. The failure of the Corporation (or its assignees)
in any instance to exercise the Repurchase Right granted under Article V, or the
failure of the Corporation (or
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<PAGE> 18
its assignees) in any instance to exercise the First Refusal Right granted under
Article VI, or the failure of the Corporation (or its assignees) in any instance
to exercise the Special Purchase Right granted under Article VIII shall not
constitute a waiver of any other repurchase rights and/or rights of first
refusal that may subsequently arise under the provisions of this Agreement or
any other agreement between the Corporation and the Participant or the
Participant's spouse. No waiver of any breach or condition of this Agreement
shall be deemed to be a waiver of any other or subsequent breach or condition,
whether of like or different nature.
9.6 CANCELLATION OF SHARES. If the Corporation (or its assignees)
shall make available, at the time and place and in the amount and form provided
in this Agreement, the consideration for the Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement), and such shares shall be
deemed purchased in accordance with the applicable provisions hereof and the
Corporation (or its assignees) shall be deemed the owner and holder of such
shares, whether or not the certificates therefor have been delivered as required
by this Agreement.
X. MISCELLANEOUS PROVISIONS
10.1 PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may in its judgment deem necessary or advisable in order to carry
out or effect one or more of the obligations or restrictions imposed on either
the Participant or the Shares pursuant to the express provisions of this
Agreement.
10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.
10.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict-of-laws rules.
10.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original,
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<PAGE> 19
but all of which together shall constitute one and the same instrument.
10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Participant and the Participant's legal representatives,
heirs, legatees, distributees, assigns and transferees by operation of law,
whether or not any such person shall have become a party to this Agreement and
have agreed in writing to join herein and be bound by the terms and conditions
hereof.
10.6 POWER OF ATTORNEY. Participant's spouse hereby appoints
Participant his or her true and lawful attorney in fact, for him or her and in
his or her name, place and stead, and for his or her use and benefit, to agree
to any amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Participant's spouse further gives and
grants unto Participant as his or her attorney in fact full power and authority
to do and perform every act necessary and proper to be done in the exercise of
any of the foregoing powers as fully as he or she might or could do if
personally present, with full power of substitution and revocation, hereby
ratifying and confirming all that Participant shall lawfully do and cause to be
done by virtue of this power of attorney.
[Remainder of this page is left intentionally blank.]
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<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and year first indicated above.
CombiChem, Inc.
By: _____________________________________
Title: __________________________________
Address: _________________________________________
_________________________________________
_________________________________________
Participant(1)
Address: _________________________________________
_________________________________________
The undersigned spouse of Participant has read and hereby
approves the foregoing Restricted Stock Purchase Agreement. In consideration of
the Corporation's granting the Participant the right to acquire the Shares in
accordance with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms and provisions of such Agreement, including,
(specifically) the right of the Corporation (or its assignees) to purchase any
and all interest or right the undersigned may otherwise have in such shares
pursuant to community property laws or other marital property rights.
-----------------------------------------
Participant's Spouse
- ----------
(1) I have executed the Section 83(b) election that was attached hereto as
Exhibit D. As set forth in Article III, I understand that I, and not the
Corporation, will be responsible for completing the form and filing the
election with the appropriate offices of the federal and state tax
authorities and that if such filing is not completed within thirty (30)
days after the date of this Agreement, I will not be entitled to the tax
benefits provided by Section 83(b).
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<PAGE> 21
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ______________________ hereby sell(s),
assign(s) and transfer(s) unto CombiChem, Inc. (the "Corporation")
____________________________________ (_____________) shares of the Common Stock
of the Corporation standing in his\her name on the books of the Corporation
represented by Certificate No. ___________________ and do hereby irrevocably
constitute and appoint ____________________ as Attorney to transfer the said
stock on the books of the Corporation with full power of substitution in the
premises.
Dated: ______________
Signature _______________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Corporation to exercise the
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Participant.
A-1
<PAGE> 22
EXHIBIT B
1995 STOCK OPTION/STOCK ISSUANCE PLAN
B-1
<PAGE> 23
EXHIBIT C
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
___________ shares of the common stock of CombiChem, Inc.
(3) The property was issued on __________________, 19___.
(4) The taxable year in which the election is being made is the calendar year
19___.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if
for any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of annual and monthly
installments over a four year period ending on ____________, 19___.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $___________ per share.
(7) The amount paid for such property is $____________ per share.
(8) A copy of this statement was furnished to CombiChem, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed as of: _______________________.
- -------------------------------- --------------------------------------
Spouse (if any) Taxpayer
This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Restricted Stock Issuance
Agreement.
B-2
<PAGE> 24
Optionee understands that the Option is granted pursuant to the
Corporation's Plan. By signing below, optionee agrees to be bound by the terms
and conditions of the Plan and the terms and conditions of the Option as set
forth in the Stock Option Agreement attached hereto as Exhibit A. Optionee
understands that any Option Shares purchased under the Option will be subject to
the terms and conditions set forth in the Stock Purchase Agreement attached
hereto as Exhibit B.
Optionee hereby acknowledges receipt of a copy of the Plan in the form
attached hereto as Exhibit C.
REPURCHASE RIGHTS. THE OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO REPURCHASE RIGHTS
AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS UPON
ANY PROPOSED SALE, ASSIGNMENT, TRANSFER, ENCUMBRANCE OR OTHER DISPOSITION OF THE
CORPORATION'S SHARES. THE TERMS AND CONDITIONS OF SUCH RIGHTS ARE SPECIFIED IN
THE STOCK PURCHASE AGREEMENT.
No Employment or Service Contract. Nothing in this Agreement or in the
Plan shall confer upon the Optionee any right to continue in the Service of the
Corporation for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation or the Optionee, which rights
are hereby expressly reserved by each, to terminate Optionee's Service at any
time for any reason whatsoever, with or without cause.
________________________, 199__
Date
CombiChem, Inc.
By_______________________________________
Title:___________________________________
-----------------------------------------
Optionee
Address:
-----------------------------------------
-----------------------------------------
<PAGE> 1
EXHIBIT 10.44
COMBICHEM, INC.
1997 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the interests
of CombiChem, 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 shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested each year in
special option grants,
- the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock, and
<PAGE> 2
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special option grant.
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, 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 Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable
2
<PAGE> 3
for any act or omission made in good faith with respect to the Plan or any
option grants or stock issuances under the Plan.
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, 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 when 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 and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to
3
<PAGE> 4
(i) those individuals who first become non-employee Board members
after the Underwriting Date, whether through appointment by the Board or
election by the Corporation's stockholders and (ii) those individuals who
have previously received a stock option grant from the Corporation and
continue to serve as non-employee Board members at one or more Annual
Stockholders Meetings held after the Underwriting Date. A non-employee Board
member who has previously been in the employ of the Corporation (or any Parent
or Subsidiary) shall not be eligible to receive an option grant under the
Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic option
grants under the Automatic Option Grant Program while he or she continues to
serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate in
the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
1,080,603 shares, which shall consist of (i) the number of shares which remained
available for issuance, as of the Plan Effective Time, under the Predecessor
Plan as last approved by the Corporation's stockholders, including the shares
subject to outstanding options under that Predecessor Plan, and (ii) an
additional increase of approximately 800,000 shares authorized by the Board and
the stockholders prior to the Section 12 Registration Date. To the extent any
unvested shares of Common Stock outstanding under the Predecessor Plan as of the
Plan Effective Time are subsequently repurchased by the Corporation, at the
option exercise price paid per share, in connection with the holder's
termination of service prior to vesting in the shares, those repurchased shares
shall be added to the reserve of Common Stock available for issuance under the
Plan.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1997 calendar year.
C. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance
4
<PAGE> 5
under the Plan to the extent those options expire or terminate for any
reason prior to exercise in full. Unvested shares issued under the Plan and
subsequently cancelled or repurchased by the Corporation (including unvested
shares issued under the Predecessor Plan and repurchased by the Corporation at
or after the Plan Effective Time), at the original 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. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance.
D. If any change is 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, (ii) the number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year, (iii) the number and/or
class of securities for which grants are subsequently to be made under the
Automatic Option Grant Program to new and continuing non-employee Board members,
(iv) the number and/or class of securities and the exercise price per share in
effect under each outstanding option under the Plan and (v) the number and/or
class of securities and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5
<PAGE> 6
ARTICLE TWO
DISCRETIONARY 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 but shall not be less than one hundred percent (100%) 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 Six
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) 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
(iii) 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 instructions to (a) 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) 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.
6
<PAGE> 7
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.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by the Optionee
at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by 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.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) 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 the option is not otherwise at
that time exercisable for vested shares.
2. The Plan Administrator shall have complete 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 from the
limited exercise period otherwise in effect for that option to such
greater period of time
7
<PAGE> 8
as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
(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.
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. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. 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, any or all 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.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options 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. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
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 Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
8
<PAGE> 9
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.
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 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 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, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as fully
vested shares of Class A Common Stock. However, an outstanding option shall NOT
become exercisable on such an accelerated basis if and to the extent: (i) such
option is, in connection with the Corporate Transaction, to be assumed by the
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Corporate Transaction on any shares for which
the option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
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C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. 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 consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. The Plan Administrator shall have the discretionary authority to
provide for the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program upon the occurrence of a Corporate
Transaction, whether or not those options are to be assumed in the Corporate
Transaction, so that each such option shall, immediately prior to the effect
date of such Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to that option and
may be exercised for any or all of those shares as fully vested shares of Common
Stock. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Discretionary Option Grant Program so that those rights shall not be
assignable in connection with such Corporate Transaction and shall accordingly
terminate upon the consummation of such Corporate Transaction, and the shares
subject to those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Option Grant Program in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may provide that one or more of the Corporation's
outstanding repurchase rights with respect to shares held by the Optionee at the
time of such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
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G. The Plan Administrator shall have the discretionary authority to
provide for the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program upon the occurrence of a Change in
Control so that each such option shall, immediately prior to the effect date of
such Change in Control, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to that option and may be
exercised for any or all of those shares as fully vested shares of Common Stock.
In addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall terminate
automatically upon the consummation of such Change in Control, and the shares
subject to those terminated rights shall thereupon vest in full. Alternatively,
the Plan Administrator may condition the automatic acceleration of one or more
outstanding options under the Discretionary Option Grant Program and the
termination of one or more of the Corporation's outstanding repurchase rights
under such program upon the subsequent termination of the Optionee's Service by
reason of an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of such Change in Control.
Each option so accelerated shall remain exercisable for fully vested shares
until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1) year period measured from the effective date of
Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options 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 Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution 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 grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
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<PAGE> 12
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect
between the exercise of the underlying option for shares of Common Stock
and the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so
approved, then the distribution to which the Optionee shall be entitled
may be made in shares of Common Stock valued at Fair Market Value on the
option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)- day period following such Hostile Take-Over) to surrender
each such option to the Corporation, to the extent the option is at the
time exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution from
the Corporation in an amount equal to the excess of (A) the Take-Over
Price of the shares of Common Stock which are at the time vested
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<PAGE> 13
under each surrendered option (or surrendered portion thereof) over (B)
the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the option
surrender date.
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<PAGE> 14
(iii) The grant of such limited stock appreciation right shall
automatically constitute pre- approval by the Plan Administrator of any
subsequent exercise of that right in accordance with the terms of this
Paragraph C. Accordingly, no further approval of the Plan Administrator
or the Board shall be required at the time of the actual option
surrender and cash distribution.
(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents evidencing
such option.
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ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for those calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). The Primary Committee shall have complete
discretion to determine whether to approve the filed authorization in whole or
in part. To the extent the Primary Committee approves the authorization, the
individual who filed that authorization shall automatically be granted an option
under the Salary Investment Grant Program on the first trading day in January of
the calendar year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option 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.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty- three and
one-third percent (33-1/3%) 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 be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
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<PAGE> 16
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the Optionee's
base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock on the option
grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by 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.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Service.
However, the option shall, immediately upon the Optionee's cessation of Service
for any reason, terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE- OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation (or parent
thereof) in the Corporate
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<PAGE> 17
Transaction and shall remain exercisable for the fully-vested shares until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the Optionee's
cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
The option shall remain so exercisable until the earlier of (i) the expiration
of the ten (10)-year option term, (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Service or (iii)
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the TakeOver Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre- approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. The grant of options under the Salary Investment Option Grant
Program 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.
III. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven, shares
of Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or
the performance objectives to be attained,
(ii) the number of installments in which the shares are to
vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
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(iv) the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
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 shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect to
any shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one
or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase- money indebtedness), the Corporation shall repay to the Participant
the cash consideration paid for the surrendered shares and shall cancel the
unpaid principal balance of any outstanding purchase-money note of the
Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender
and cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
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<PAGE> 20
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights remain outstanding under the Stock Issuance
Program, to provide that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
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ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 20,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a Non-
Statutory Option to purchase 5,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 5,000-share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received a stock
option grant from the Corporation prior to the Underwriting Date shall be
eligible to receive one or more such annual option grants over their period of
continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
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<PAGE> 22
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each automatic option grant shall vest, and
the Corporation's repurchase right shall lapse, as follows: (i) twenty-five
percent (25%) upon Optionee's completion of one (1) year of Board service
measured from the grant date and (ii) the balance in a series of thirty-six (36)
successive equal monthly installments over the optionee's thirty-six (36)-month
period of Board service measured from the first anniversary of the option grant
date.
E. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, 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 twelve (12)-month period following the date of such cessation of
Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time
of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve
(12)-month 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 Board
service for any reason other than death or
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<PAGE> 23
Permanent Disability, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE- OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile TakeOver.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
D. 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 consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
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<PAGE> 24
E. The grant of options under the Automatic Option Grant Program
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.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any portion
of the annual retainer fee otherwise payable in cash for his or her service on
the Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to first day of the calendar year for which the annual
retainer fee which is the subject of that election is otherwise payable. Each
non-employee Board member who files such a timely election shall automatically
be granted an option under this Director Fee Option Grant Program on the first
trading day in January in the calendar year for which the annual retainer fee
which is the subject of that election would otherwise be payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty- three and
one-third percent (33-1/3%) 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 be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and
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B is the Fair Market Value per share of Common Stock on the option
grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each month of Board service over the twelve (12)-month period
measured from the grant date. Each option shall have a maximum term of ten (10)
years measured from the option grant date.
D. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by 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. Such right of exercise shall lapse,
and the option shall terminate, upon the earlier of (i) the expiration of the
ten (10)-year option term or (ii) the three (3)-year period measured from the
date of the Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKEOVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior
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to the effective date of the Corporate Transaction, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall be
assumed by the successor corporation (or parent thereof) in the Corporate
Transaction and shall remain exercisable for the fully-vested shares until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the Optionee's
cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. The
option shall remain so exercisable until the earlier or (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the three (3)- year
period measured from the date of the Optionee's cessation of Service.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required in connection with such option surrender and
cash distribution.
D. The grant of options under the Director Fee Option Grant Program
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. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
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ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing 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. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options or the vesting of their
shares. Such right may be provided to any such holder in either or both of the
following formats:
Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at the
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
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<PAGE> 29
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately at the Plan Effective
Time. However, the Salary Investment Option Grant Program shall not be
implemented until such time as the Primary Committee may deem appropriate.
Options may be granted under the Discretionary Option Grant or Automatic Option
Grant Program at any time at or after the Plan Effective Time. However, no
options granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
Plan Effective Time, then all options previously granted under this Plan shall
terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and
no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options outstanding
under the Predecessor Plan on the Section 12 Registration Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) October
31, 2007, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully-vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on October 31, 2007, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants 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 adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
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<PAGE> 30
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow 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 first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
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
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
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 such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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<PAGE> 31
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. 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
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(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.
G. CORPORATION shall mean CombiChem, Inc., a Delaware corporation,
and its successors.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. 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.
L. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
M. 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 Association of Securities Dealers on the
Nasdaq National Market. 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.
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(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and target
bonus under any corporate- performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person 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 any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
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S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
U. 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.
V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1997 Stock Incentive Plan, as
set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. PLAN EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and finally priced.
AA. PREDECESSOR PLAN shall mean the Corporation's pre- existing Stock
Option Plan in effect immediately prior to the Plan Effective Time hereunder.
AB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock
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Issuance Programs with respect to Section 16 Insiders and to administer the
Salary Investment Option Grant Program solely with respect to the selection of
the eligible individuals who may participate in such program.
AC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under the Plan.
AD. SECONDARY COMMITTEE shall mean a committee of one or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
AE. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12 of Section 16 of the 1934 Act.
AF. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AG. SERVICE shall mean the performance of services for 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 or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
AH. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
AI. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
AJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
AK. 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.
AL. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile TakeOver or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
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AM. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non- Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
AN. 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).
AO. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AP. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
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EXHIBIT 10.45
COMBICHEM, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of CombiChem, Inc. by providing eligible employees with the
opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common Stock which
may be issued over the term of the Plan shall not exceed One Hundred Fifty
Thousand (150,000) shares.
B. 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 class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
<PAGE> 2
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. The initial offering period shall commence
at the Effective Time and terminate on the last business day in July 1999. The
next offering period shall commence on the first business day in August 1999,
and subsequent offering periods shall commence as designated by the Plan
Administrator.
C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February each year to the last business day in July of the same
year and from the first business day in August each year to the last business
day in January of the following year. Accordingly, the first Purchase Interval
in effect under the initial offering period shall commence at the Effective Time
and terminate on the last business day in July 1998.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty four (24) months, unless a shorter
duration is established by the Plan Administrator within five (5) business days
following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date or on any subsequent SemiAnnual Entry Date within that offering period,
provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
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<PAGE> 3
D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock during an offering period may be any
multiple of one percent (1%) of the Cash Earnings paid to the Participant during
each Purchase Interval within that offering period, up to a maximum of ten
percent (10%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction to become effective
as soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one
(1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his
or her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the ten percent (10%)
maximum) shall become effective on the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be required
to be held in any segregated account or trust fund and may be commingled with
the general assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
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<PAGE> 4
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a separate
purchase right for each offering period in which he or she participates. The
purchase right shall be granted on the Participant's Entry Date into the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments over the
remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded pursuant to the Termination of Purchase Right
provisions below) on each such Purchase Date. The purchase shall be effected by
applying the Participant's payroll deductions for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Common Stock
will be purchased on the Participant's behalf on each Purchase Date within the
offering period shall be equal to eighty-five percent (85%) of the lower of (i)
the Fair Market Value per share of Common Stock on the Participant's Entry Date
into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Purchase Interval
ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed One Thousand Two Hundred Fifty (1,250) shares, subject to periodic
adjustments in the event of certain changes in the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on
4
<PAGE> 5
the next Purchase Date. However, any payroll deductions not applied to the
purchase of Common Stock by reason of the limitation on the maximum number of
shares purchasable by the Participant on the Purchase Date shall be promptly
refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Interval in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into that offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding, then that
purchase right shall immediately terminate, and all of the Participant's
payroll deductions for the Purchase Interval in which the purchase right
so terminates shall be immediately refunded. However, should the
Participant cease to remain in active service by reason of an approved
unpaid leave of absence, then the Participant shall have the right,
exercisable up until the last business day of the Purchase Interval in
which such leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase Interval or (b)
have such funds held for the purchase of shares on his or her behalf on
the next scheduled Purchase Date. In no event, however, shall any
further payroll deductions be collected on the Participant's behalf
during such leave. Upon the Participant's return to active service, his
or her payroll deductions under the Plan shall automatically resume at
the rate in effect at the time the leave began, unless the Participant
withdraws from the Plan prior to his or her return.
5
<PAGE> 6
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the Participant's Entry Date into the offering period in which
such Corporate Transaction occurs or (ii) the Fair Market Value per share of
Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable limitation on the number of shares of
Common Stock purchasable per Participant shall continue to apply to any such
purchase.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of
Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder rights
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
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<PAGE> 7
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each
successive Purchase Date during the offering period on which such right
remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock
under one (1) or more other purchase rights at a rate equal to
Twenty-Five Thousand Dollars ($25,000) worth of Common Stock (determined
on the basis of the Fair Market Value per share on the date or dates of
grant) for each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on October 7, 1997 and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in July 2007, (ii) the date on
which all shares available for
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<PAGE> 8
issuance under the Plan shall have been sold pursuant to purchase rights
exercised under the Plan or (iii) the date on which all purchase rights are
exercised in connection with a Corporate Transaction. No further purchase rights
shall be granted or exercised, and no further payroll deductions shall be
collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Board may not, without the approval of the Corporation's
stockholders, (i) increase the number of shares of Common Stock issuable under
the Plan or the maximum number of shares purchasable per Participant on any one
Purchase Date, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization, (ii) alter the purchase price
formula so as to reduce the purchase price payable for the shares of Common
Stock purchasable under the Plan or (iii) modify eligibility requirements for
participation in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation; however, each Plan Participant shall bear all
costs and expenses incurred by such individual in the sale or other disposition
of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of Delaware without resort to that State's conflict-of-laws rules.
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<PAGE> 9
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
CombiChem, Inc.
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) gross base salary payable to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan before
deduction of any income or employment taxes plus (ii) any pre-tax contributions
made by the Participant to any Code Section 401(k) salary deferral plan or any
Code Section 125 cafeteria benefit program now or hereafter established by the
Corporation or any Corporate Affiliate plus (iii) all gross overtime payments,
bonuses, commissions, current profit-sharing distributions and other
incentive-type payments before deduction of any income or employment taxes.
However, Cash Earnings shall NOT include any contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the Participant's
behalf by the Corporation or any Corporate Affiliate under any employee benefit
or welfare plan now or hereafter established.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. 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 assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean CombiChem, Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of CombiChem, Inc. which shall by appropriate action adopt the Plan.
A-1
<PAGE> 11
H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. 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 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) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is sold in the initial
public offering pursuant to the Underwriting Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
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<PAGE> 12
N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. PLAN shall mean the Corporation's Employee Stock Purchase Plan, as
set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each Purchase
Interval. The initial Purchase Date shall be July 31, 1998.
R. PURCHASE INTERVAL shall mean each successive six (6)-month period
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
February and August each year on which an Eligible Employee may first enter an
offering period.
T. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE> 1
EXHIBIT 10.46
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of ___________,
1997 between CombiChem, Inc., a Delaware corporation ("Corporation"), and
________________________ ("Director").
RECITALS:
A. Director, a member of the Board of Directors of Corporation,
performs a valuable service in such capacity for Corporation; and
B. The stockholders of Corporation have adopted Bylaws (the "Bylaws")
providing for the indemnification of the officers, directors, agents and
employees of Corporation to the maximum extent authorized by Section 145 of the
Delaware General Corporation Law, as amended (the "Law"); and
C. The California General Corporation Law, as amended (the "Code"),
currently purports to be the controlling law governing the Corporation with
respect to certain aspects of corporate law, including indemnification of
directors and officers; and
D. At times in the future the Code foreseeably will not purport to be
the controlling law governing the Corporation with respect to such aspects,
leaving the Law as the controlling law governing the Corporation with respect to
such aspects; and
E. The Bylaws, the Code and the Law, by their non-exclusive nature,
permit contracts between Corporation and the members of its Board of Directors
with respect to indemnification of such directors; and
F. In accordance with the authorization as provided by the Code and
the Law, Corporation may from time to time purchase and maintain a policy or
policies of Directors and Officers Liability Insurance ("D & O Insurance"),
covering certain liabilities which may be incurred by its directors and officers
in the performance of services as directors and officers of Corporation; and
G. As a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded members of the Board of
Directors by such D & O Insurance, if any, and by statutory and bylaw
indemnification provisions; and
H. In order to induce Director to continue to serve as a member of
the Board of Directors of Corporation, Corporation has determined and agreed to
enter into this contract with Director,
<PAGE> 2
NOW, THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Director. Corporation hereby agrees to hold harmless
and indemnify Director to the fullest extent authorized or permitted by the
provisions of the Law and the Code, as each may be amended from time to time,
all so as to provide the greatest benefit to Director.
2. Additional Indemnity. Subject only to the exclusions set forth in
Section 3 hereof, Corporation hereby further agrees to hold harmless and
indemnify Director:
(a) against any and all expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Director in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of Corporation) to which
Director is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Director is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Director
by Corporation under the non-exclusivity provisions of the Bylaws of
Corporation, the Code and the Law.
3. Limitations on Additional Indemnity. No indemnity pursuant to
Section 2 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which the Director is indemnified
pursuant to Section 1 hereof or reimbursed pursuant to any D & O Insurance
purchased and maintained by Corporation;
(b) in respect of remuneration paid to Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any action, suit or proceeding in which judgment
is rendered against Director for an accounting of profits made from the purchase
or sale by Director of securities of Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(d) on account of Director's conduct which is finally adjudged to
have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct;
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<PAGE> 3
(e) on account of Director's conduct which is the subject of an
action, suit or proceeding described in Section 7(c)(ii) hereof;
(f) on account of or arising in response to any action, suit or
proceeding (other than an action, suit or proceeding referred to in Section 8(b)
hereof) initiated by Director or any of Director's affiliates against
Corporation or any officer, director or stockholder of Corporation unless such
action, suit or proceeding was authorized in the specific case by action of the
Board of Directors of Corporation;
(g) on account of any action, suit or proceeding to the extent
that Director is a plaintiff, a counter-complainant or a cross-complainant
therein (other than an action, suit or proceeding permitted by Section 3(f)
hereof); or
(h) if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful (and, in this
respect, both Corporation and Director have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication).
4. Contribution. If the indemnification provided in Sections 1 and 2
is unavailable and may not be paid to Director for any reason other than those
set forth in paragraphs (b) through (g) of Section 3, then in respect of any
threatened, pending or completed action, suit or proceeding in which Corporation
is or is alleged to be jointly liable with Director (or would be if joined in
such action, suit or proceeding), Corporation shall contribute to the amount of
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred and paid or payable by Director in
such proportion as is appropriate to reflect (i) the relative benefits received
by Corporation on the one hand and Director on the other hand from the
transaction from which such action, suit or proceeding arose, and (ii) the
relative fault of Corporation on the one hand and of Director on the other hand
in connection with the events which resulted in such expenses, judgments, fines
or settlement amounts, as well as any other relevant equitable considerations.
The relative fault of Corporation on the one hand and of Director on the other
shall be determined by reference to, among other things, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
the circumstances resulting in such expenses, judgments, fines or settlement
amounts. Corporation agrees that it would not be just and equitable if
contribution pursuant to this Section 4 were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.
5. Continuation of Obligations.
(a) All agreements and obligations of Corporation contained herein
shall continue during the period Director is a director, officer, employee or
agent of Corporation (or is or was serving at the request of Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other
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<PAGE> 4
enterprise) and shall continue thereafter so long as Director shall be subject
to any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Director was serving Corporation or such other entity in any capacity referred
to herein.
(b) For six years after the effective time of (i) the acquisition
of the Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation) or (ii) the sale of all or substantially all of the assets of
the Corporation by means of any transaction or series of related transactions,
the Corporation (to the extent the Corporation is not the continuing or
surviving person of such reorganization, merger, consolidation or sale) shall
cause the acquiring, continuing or surviving corporation to (x) indemnify and
hold harmless Director in accordance with Section 1 and 2 hereof and (y) use its
best efforts to provide directors' liability insurance on terms substantially
similar to the terms of the Corporation's then current directors' liability
insurance policy in effect on the dated thereof, or any other arrangement
reasonably satisfactory to Director, in respect of acts or omissions occurring
on or prior to the effective time of the reorganization, merger, consolidation
or sale.
6. Notification and Defense of Claim. Not later than thirty (30) days
after receipt by Director of notice of the commencement of any action, suit or
proceeding, Director will, if a claim in respect thereof is to be made against
Corporation under this Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will not relieve it from any
liability which it may have to Director otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Director
notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) except as otherwise provided below, to the extent that it may
wish, Corporation jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Director. After notice from Corporation to Director of its
election so as to assume the defense thereof, Corporation will not be liable to
Director under this Agreement for any legal or other expenses subsequently
incurred by Director in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Director shall
have the right to employ his own counsel in such action, suit or proceeding but
the fees and expenses of such counsel incurred after notice from Corporation of
its assumption of the defense thereof shall be at the expense of Director unless
(i) the employment of counsel by Director has been authorized by Corporation,
(ii) Director shall have reasonably concluded that there may be a conflict of
interest between Corporation and Director in the conduct of the defense of such
action or (iii) Corporation shall not in fact have employed counsel to assume
the defense of such action, in each of which cases the fees and expenses of
Director's separate counsel shall be at the expense of Corporation. Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of Corporation or as to which Director shall have made
the conclusion provided for in (ii) above; and
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<PAGE> 5
(c) Corporation shall not be liable to indemnify Director under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. Corporation shall be permitted to settle
any action except that it shall not settle any action or claim in any manner
which would impose any penalty, out-of-pocket liability, or limitation on
Director without Director's written consent. Neither Corporation nor Director
will unreasonably withhold its or his consent to any proposed settlement.
7. Advancement and Repayment of Expenses.
(a) In the event that Director employs his own counsel pursuant to
Section 6(b)(i) through (iii) above, Corporation shall advance to Director,
prior to any final disposition of any threatened or pending action, suit or
proceeding, whether civil, criminal, administrative or investigative, any and
all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Director for such expenses.
(b) Director agrees that Director will reimburse Corporation for
all reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Director in the event and only to the extent
it shall be ultimately determined by a final judicial decision (from which there
is no right of appeal) that Director is not entitled, under the provisions of
the Law, the Bylaws, this Agreement or otherwise, to be indemnified by
Corporation for such expenses.
(c) Notwithstanding the foregoing, Corporation shall not be
required to advance such expenses to Director if Director (i) commences any
action, suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors or (ii) is a party to an
action, suit or proceeding brought by Corporation and approved by a majority of
the Board which alleges willful misappropriation of corporate assets by
Director, disclosure of confidential information in violation of Director's
fiduciary or contractual obligations to Corporation, or any other willful and
deliberate breach in bad faith of Director's duty to Corporation or its
stockholders.
8. Enforcement.
(a) Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Director to continue as a director of Corporation, and
acknowledges that Director is relying upon this Agreement in continuing in such
capacity.
(b) In the event Director is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, the Corporation shall reimburse Director for all Director's
reasonable fees and expenses in bringing and pursuing such action.
9. Subrogation. In the event of payment under this agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Director, who
-5-
<PAGE> 6
shall execute all documents required and shall do all acts that may be necessary
to secure such rights and to enable Corporation effectively to bring suit to
enforce such rights.
10. Non-Exclusivity of Rights. The rights conferred on Director by
this Agreement shall not be exclusive of any other right which Director may have
or hereafter acquire under any statute, provision of Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
11. Survival of Rights. The rights conferred on Director by this
Agreement shall continue after Director has ceased to be a director, officer,
employee or other agent of Corporation or such other entity and shall inure to
the benefit of Director's heirs, executors and administrators.
12. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any or
all of the provisions hereof shall be held to be invalid or unenforceable to any
extent for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof or the obligation of
the Corporation to indemnify the Director to the full extent provided by the
Bylaws and the Law and, if applicable, the Code, and the affected provision
shall be construed and enforced so as to effectuate the parties' intent to the
maximum extent possible.
13. Governing Law. This Agreement shall be interpreted and enforced
in accordance with the internal laws of the State of Delaware as applied to
contracts entered into and to be performed wholly within such State.
14. Inconsistency. In the event of any inconsistency between any of
the provisions of this Agreement, the controlling provision as to any particular
issue with regard to any particular matter shall be the one which authorizes for
the benefit of the Director the provision of the fullest, promptest, most
certain or otherwise most favorable indemnification and/or advancement.
15. Binding Effect. This Agreement shall be binding upon Director and
upon Corporation, its successors and assigns, and shall inure to the benefit of
Director, his heirs, personal representatives and assigns and to the benefit of
Corporation, its successors and assigns.
16. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless set
forth in a writing signed by both parties hereto.
17. Entire Agreement. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore entered
into by the parties.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
CORPORATION: COMBICHEM, INC.,
a Delaware corporation
By:
--------------------------------
(Signature)
-----------------------------------
Print Name and Title
DIRECTOR:
-----------------------------------
(Signature)
-----------------------------------
Print Name
[SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT]
<PAGE> 1
EXHIBIT 10.47
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this _______ day of
____________________, 1997 between CombiChem, Inc., a Delaware corporation
("Corporation"), and ____________________ ("Officer").
RECITALS:
A. Officer, an officer (but not currently a member of the Board of
Directors) of Corporation, performs a valuable service in such capacity for
Corporation; and
B. The stockholders of Corporation have adopted Bylaws (the "Bylaws")
providing, for the indemnification of the officers, directors, agents and
employees of Corporation to the maximum extent authorized by Section 145 of the
Delaware General Corporation Law, as amended (the "Law"); and
C. The California General Corporation Law, as amended (the "Code"),
currently purports to be the controlling law governing the Corporation with
respect to certain aspects of corporate law, including indemnification of
directors and officers; and
D. At times in the future the Code foreseeably will not purport to be
the controlling law governing the Corporation with respect to such aspects,
leaving the Law as the controlling law governing the Corporation with respect to
such aspects; and
E. The Bylaws, the Code and the Law, by their non-exclusive nature,
permit contracts between Corporation and its officers with respect to
indemnification of officers; and
F. In accordance with the authorization as provided by the Code and
the Law, Corporation may from time to time purchase and maintain a policy or
policies of Directors and Officers Liability Insurance ("D & O Insurance"),
covering certain liabilities which may be incurred by its directors and officers
in the performance of services as directors and officers of Corporation; and
G. As a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded officers by such D & O
Insurance, if any, and by statutory and bylaw indemnification provisions; and
H. In order to induce Officer to continue to serve as an officer of
Corporation, Corporation has determined and agreed to enter into this contract
with Officer;
NOW, THEREFORE, in consideration of Officer's continued service as an
officer after the date hereof, the parties hereto agree as follows:
<PAGE> 2
1. Indemnity of Officer. Corporation hereby agrees to hold harmless
and indemnify Officer to the fullest extent authorized or permitted by the
provisions of the Code and the Law, as it may be amended from time to time, all
so as to provide the greatest possible benefit to Officer.
2. Additional Indemnity. Subject only to the exclusions set forth in
Section 3 hereof, Corporation hereby further agrees to hold harmless and
indemnify Officer:
(a) against any and all legal expenses (including attorneys'
fees), witness fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred by Officer in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of Corporation) to which
Officer is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Officer is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Officer
by Corporation under the non-exclusivity provisions of the Bylaws of
Corporation, the Code and the Law.
3. Limitations on Additional Indemnity. No indemnity pursuant to
Section 2 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of such losses for which Officer is indemnified
pursuant to Section 1 hereof or reimbursed pursuant to any D & O Insurance
purchased and maintained by Corporation;
(b) in respect of remuneration paid to Officer if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any action, suit or proceeding in which judgment
is rendered against Officer for an accounting of profits made from the purchase
or sale by Officer of securities of Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(d) on account of Officer's conduct which is finally adjudged to
have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct;
(e) on account of Officer's conduct which is the subject of an
action, suit or proceeding described in Section 7(c)(ii) hereof;
(f) on account of or arising in response to any action, suit or
proceeding (other than an action, suit or proceeding referred to in Section 8(b)
hereof) initiated by
-2-
<PAGE> 3
Officer or any of Officer's affiliates against Corporation or any officer,
director or stockholder of Corporation unless such action, suit or proceeding
was authorized in the specific case by action of the Board of Directors of
Corporation;
(g) on account of any action, suit or proceeding to the extent
that Officer is a plaintiff, a counter-complainant or a cross-complainant
therein (other than an action, suit or proceeding permitted by Section 3(f)
hereof); or
(h) if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful (and, in this
respect, both Corporation and Officer have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication).
4. Contribution. If the indemnification provided in Sections 1 and 2
is unavailable and may not be paid to Officer for any reason other than those
set forth in paragraphs (b) through (g) of Section 3, then in respect of any
threatened, pending or completed action, suit or proceeding in which Corporation
is or is alleged to be jointly liable with Officer (or would be if joined in
such action, suit or proceeding), Corporation shall contribute to the amount of
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred and paid or payable by Officer in
such proportion as is appropriate to reflect (i) the relative benefits received
by Corporation on the one hand and Officer on the other hand from the
transaction from which such action, suit or proceeding arose, and (ii) the
relative fault of Corporation on the one hand and of Officer on the other hand
in connection with the events which resulted in such expenses, judgments, fines
or settlement amounts, as well as any other relevant equitable considerations.
The relative fault of Corporation on the one hand and of Officer on the other
hand shall be determined by reference to, among other things, the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent the circumstances resulting in such expenses, judgments, fines or
settlement amounts. Corporation agrees that it would not be just and equitable
if contribution pursuant to this Section 4 were determined by pro rata
allocation or any other method of allocation which does not take account of the
foregoing equitable considerations.
5. Continuation of Obligations.
(a) All agreements and obligations of Corporation contained herein
shall continue during the period Officer is a director, officer, employee or
agent of Corporation (or is or was serving at the request of Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) and shall continue
thereafter so long as Officer shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that Officer was serving
Corporation or such other entity in any capacity referred to herein.
-3-
<PAGE> 4
(b) For six years after the effective time of (i) the acquisition
of the Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation) or (ii) the sale of all or substantially all of the assets of
the Corporation by means of any transaction or series of related transactions,
the Corporation (to the extent the Corporation is not the continuing or
surviving person of such reorganization, merger, consolidation or sale) shall
cause the acquiring, continuing or surviving corporation to (x) indemnify and
hold harmless Officer in accordance with Section 1 and 2 hereof and (y) use its
best efforts to provide officers' liability insurance on terms substantially
similar to the terms of the Corporation's then current officers' liability
insurance policy in effect on the date thereof, or any other arrangement
reasonably satisfactory to Officer, in respect of acts or omissions occurring on
or prior to the effective time of the reorganization, merger, consolidation or
sale.
6. Notification and Defense of Claim. Not later than thirty (30) days
after receipt by Officer of notice of the commencement of any action, suit or
proceeding, Officer will, if a claim in respect thereof is to be made against
Corporation under this Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will not relieve it from any
liability which it may have to Officer otherwise than under this Agreement. With
respect to any such action, suit or proceeding as to which Officer notifies
Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
(b) except as otherwise provided below, to the extent that it may
wish, Corporation jointly with any other indemnifying party similarly notified
will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Officer. After notice from Corporation to Officer of its
election so as to assume the defense thereof, Corporation will not be liable to
Officer under this Agreement for any legal or other expenses subsequently
incurred by Officer in connection with the defense thereof other than reasonable
costs of investigation or as otherwise provided below. Officer shall have the
right to employ his or her own counsel in such action, suit or proceeding but
the fees and expenses of such counsel incurred after notice from Corporation of
its assumption of the defense thereof shall be at the expense of Officer unless
(i) the employment of counsel by Officer has been authorized by Corporation,
(ii) Officer shall have reasonably concluded that there may be a conflict of
interest between Corporation and Officer in the conduct of the defense of such
action or (iii) Corporation shall not in fact have employed counsel to assume
the defense of such action, in each of which cases the fees and expenses of
Officer's separate counsel shall be at the expense of Corporation. Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of Corporation or as to which Officer shall have made
the conclusion provided for in (ii) above; and
(c) Corporation shall not be liable to indemnify Officer under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. Corporation shall be permitted to settle
any action except that it shall not settle any action or claim in any manner
which would impose any penalty, out-of-pocket
-4-
<PAGE> 5
liability, or limitation on Officer without Officer's written consent. Neither
Corporation nor Officer will unreasonably withhold its or his or her consent to
any proposed settlement.
7. Advancement and Repayment of Expenses.
(a) In the event that Officer employs his or her own counsel
pursuant to Section 6(b)(i) through (iii) above, Corporation shall advance to
Officer, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Officer for such expenses.
(b) Officer agrees that Officer will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Officer in the event and only to the extent
it shall be ultimately determined by a final judicial decision (from which there
is no right of appeal) that Officer is not entitled, under the provisions of the
Law, the Bylaws, this Agreement or otherwise, to be indemnified by Corporation
for such expenses.
(c) Notwithstanding the foregoing, Corporation shall not be
required to advance such expenses to Officer if Officer (i) commences any
action, suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors or (ii) is a party to an
action, suit or proceeding brought by Corporation and approved by a majority of
the Board which alleges willful misappropriation of corporate assets by Officer,
disclosure of confidential information in violation of Officer's fiduciary or
contractual obligations to Corporation, or any other willful and deliberate
breach in bad faith of Officer's duty to Corporation or its stockholders.
8. Enforcement.
(a) Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Officer to continue as an officer of Corporation, and
acknowledges that Officer is relying upon this Agreement in continuing in such
capacity.
(b) In the event Officer is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, Corporation shall reimburse Officer for all of Officer's
reasonable fees and expenses in bringing and pursuing such action.
9. Subrogation. In the event of payment under this agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Officer, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
-5-
<PAGE> 6
10. Non-Exclusivity of Rights. The rights conferred on Officer by
this Agreement shall not be exclusive of any other right which Officer may have
or hereafter acquire under any statute, provision of Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding office.
11. Survival of Rights. The rights conferred on Officer by this
Agreement shall continue after Officer has ceased to be a director, officer,
employee or other agent of Corporation or such other entity and shall inure to
the benefit of Officer's heirs, executors and administrators.
12. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any or
all of the provisions hereof shall be held to be invalid or unenforceable to any
extent for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof or the obligation of
Corporation to indemnify Officer to the full extent provided by the Bylaws and
the Law, and, if applicable, the Code, and the affected provision shall be
construed and enforced so as to effectuate the parties' intent to the maximum
extent possible.
13. Governing Law. This Agreement shall be interpreted and enforced
in accordance with the internal laws of the State of Delaware as applied to
contracts entered into and to be performed wholly within such State.
14. Binding Effect. This Agreement shall be binding upon Officer and
upon Corporation, its successors and assigns, and shall inure to the benefit of
Officer, his or her heirs, personal representatives and assigns and to the
benefit of Corporation, its successors and assigns.
15. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless set
forth in a writing signed by both parties hereto.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
CORPORATION: COMBICHEM, INC.,
a Delaware corporation
By:
--------------------------------
(Signature)
-----------------------------------
Print Name and Title
OFFICER:
-----------------------------------
[SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT]
<PAGE> 1
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Period From
May 23, 1994 Year Ended Nine Months Ended
(inception) to December 31, September 30,
December 31, ----------------- ------------------
1994 1995 1996 1996 1997
-------------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
HISTORICAL NET LOSS PER SHARE:
Net Loss $ (706) $(6,675) $(5,118) $(4,461) $(3,669)
====== ======= ======= ======= =======
Weighted average common shares
outstanding 82 544 637 637 637
Adjustments to reflect
requirements of the
Securities and Exchange
Commission (Effect of
SAB 83) 2,325 2,325 2,325 2,325 2,325
------ ------- ------- ------- -------
Adjusted shares outstanding 2,407 2,869 2,962 2,962 2,962
====== ======= ======= ======= =======
Historical net loss per share $(0.29) $ (2.33) $ (1.73) $ (1.51) $ (1.24)
====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
1996 1997
------------- -----------------
<S> <C> <C>
PRO FORMA NET LOSS PER SHARE:
Net loss $(5,118) $(3,669)
======= =======
Weighted average common shares outstanding 637 637
Effect of assumed conversion of preferred
shares 4,835 5,230
Adjustments to reflect requirements of
the Securities and Exchange Commission
(Effect of SAB 83) 2,325 2,325
------- -------
Adjusted shares outstanding 7,797 8,192
======= =======
Pro forma net loss per share $ (0.66) $ (0.45)
======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.2
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 October 15, 1997, in the
Registration Statement (Form S-1) and related Prospectus of CombiChem, Inc. for
the registration of 2,587,500 shares of its common stock.
San Diego, California /s/ Ernst & Young LLP
October 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,402
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,920
<PP&E> 4,080
<DEPRECIATION> 982
<TOTAL-ASSETS> 13,363
<CURRENT-LIABILITIES> 3,632
<BONDS> 0
23,130
0
<COMMON> 1,978
<OTHER-SE> (1,662)
<TOTAL-LIABILITY-AND-EQUITY> 13,363
<SALES> 0
<TOTAL-REVENUES> 4,599
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (293)
<INCOME-PRETAX> (3,669)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,669)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,669)
<EPS-PRIMARY> (1.24)
<EPS-DILUTED> (1.24)
</TABLE>
