<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 333-23407
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AURORA BIOSCIENCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 8731 33-0669859
(STATE OR JURISDICTION (PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER
ORGANIZATION)
</TABLE>
11149 NORTH TORREY PINES ROAD
LA JOLLA, CALIFORNIA 92037
(619) 452-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
TIMOTHY J. RINK
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
AURORA BIOSCIENCES CORPORATION
11149 NORTH TORREY PINES ROAD
LA JOLLA, CALIFORNIA 92037
(619) 452-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
THOMAS A. COLL, ESQ. JEFFREY S. MARCUS, ESQ.
ERIC J. LOUMEAU, ESQ. TAMARA POWELL TATE, ESQ.
COOLEY GODWARD LLP MORRISON & FOERSTER LLP
4365 EXECUTIVE DRIVE, SUITE 1100 1290 AVENUE OF THE AMERICAS
SAN DIEGO, CA 92121 NEW YORK, NY 10104
(619) 550-6000 (212) 468-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<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
APRIL 30, 1997
3,000,000 SHARES
[AURORA LOGO]
COMMON STOCK
------------------------
All of the 3,000,000 shares of Common Stock offered hereby are being sold
by Aurora Biosciences Corporation, a Delaware corporation ("Aurora" 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 of the Common Stock will be between $9.00 and $11.00 per share.
See "Underwriting" for the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for quotation on the
Nasdaq National Market under the symbol ABSC.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING 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
SECURITIES AND EXCHANGE 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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<CAPTION>
=================================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
=================================================================================================
</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting expenses of the offering estimated at $600,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
[GRAPHIC DEPICTION OF UHTS SYSTEM]
[Items depicted will be identified by the following labels:]
Genomic Targets
Combinatorial Chemistry Libraries
Automated Storage and Retrieval System
Miniaturized Fluorescent Assays
NanoPlate(TM)
Microfluidics
Fluorescence Detector
Lead Compounds
Informatics
Mammalian Cells
Depicted above is a schematic representation of Aurora's integrated
technology platform designed to take advantage of the great number of targets
being identified through genomics and the large, diverse libraries of compounds
being generated from combinatorial chemistry. Aurora's ultra-high throughput
screening ("UHTS") system is designed to incorporate a store of over 1,000,000
compounds and is expected to screen in excess of 100,000 compounds per day in
miniaturized assays. The UHTS system is expected to be operational in three to
four years.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING THE ENTRY OF STABILIZING BIDS, OR SYNDICATE COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
NanoPlate(TM) is a trademark of the Company and Packard Instrument Company.
All other trade names or trademarks appearing in this Prospectus are the
property of their respective holders.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Prospective investors are cautioned that such
statements are only predictions and that actual events or results may differ
materially. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this Prospectus,
including the matters set forth under the caption "Risk Factors," which could
cause actual results to differ materially from those indicated by such
forward-looking statements.
THE COMPANY
Aurora Biosciences Corporation ("Aurora" or the "Company") designs and
develops proprietary drug discovery systems, services and technologies to
accelerate and enhance the discovery of new medicines. Aurora is developing an
integrated technology platform comprised of a portfolio of proprietary
fluorescent assay technologies and an ultra-high throughput screening ("UHTS")
system designed to allow assay miniaturization and to overcome many of the
limitations associated with the traditional drug discovery process. The Company
believes that this platform will enable Aurora and its collaborators, which
include Bristol-Myers Squibb ("BMS") and Eli Lilly and Company ("Lilly"), to
take advantage of the opportunities created by recent advances in genomics and
combinatorial chemistry that have generated many new therapeutic targets and an
abundance of new small molecule compounds. Aurora believes its integrated
platform will accelerate the drug discovery process by shortening the time
required to identify high quality lead compounds and to optimize those compounds
into drug development candidates.
The discovery and development of new medicines historically has been an
expensive, time-consuming and often unsuccessful process. Recent developments in
molecular biology and genomics as well as combinatorial chemistry have created
significant opportunities to discover greater numbers of high quality lead
compounds for development into new medicines. The advances in molecular biology
and genomics have resulted in a greater understanding of the molecular and
genetic basis of disease and have led to the identification of many new genes as
potential therapeutic targets for drug discovery. Many companies have used
combinatorial chemistry to quickly create libraries of hundreds of thousands or
even millions of small molecules for screening against established and novel
targets. However, the increasing numbers of targets and compounds have created
severe bottlenecks in the drug discovery process. These bottlenecks result from
the difficulty of quickly analyzing the function and disease relevance of newly
discovered targets, the complexity of incorporating the many different types of
targets into screening assays, and the inability to screen extensive compound
libraries quickly and at a reasonable cost. In order to address these issues,
the Company is integrating advanced technologies to develop superior assays, to
enable analysis of gene function in mammalian cells and to miniaturize and
accelerate compound screening.
Aurora's proprietary fluorescent assay technologies are being used today to
facilitate drug discovery by the Company's collaborators and in the Company's
existing high throughput screening system. Aurora's portfolio of fluorescent
assay technologies is designed to enable screening of compounds against nearly
all major classes of human drug targets, including receptors, ion channels and
enzymes, in most therapeutic areas. The Company's fluorescent assay technologies
are highly sensitive, and are designed to permit more rapid screen development
and the development of miniaturized assays important for cost-effective high
throughput screening. Additionally, many of the Company's screens are being
designed to be performed with living mammalian cells to better model human
disease processes.
The second principal component of Aurora's integrated technology platform
is its UHTS system, which is being designed to screen over 100,000 discrete
compounds per day in miniaturized assays.
3
<PAGE> 5
The UHTS system will combine an automated storage and retrieval system,
microfluidic dispensing devices, and NanoPlates in which miniaturized assays are
performed. Specialized fluorescence detectors are designed to record and process
the signals from the NanoPlates, with advanced software and informatics to
capture the resulting data. In developing the UHTS system, the Company is
applying to the drug discovery process technological advances that have already
been deployed successfully in other industrial processes, while adding its own
proprietary innovations. In this regard, the Company has entered into strategic
technology alliances with several technology leaders, including Packard
Instrument Company and Carl Creative Systems, Inc. The Company expects the UHTS
system to be fully integrated and operational within the next three to four
years.
Aurora's goal is to become the leader in the development and
commercialization of technologies that will accelerate and enhance the discovery
of new medicines. The Company seeks to diversify business risk by generating
revenue from multiple collaborators seeking to exploit Aurora's fluorescent
assay technologies and UHTS system in many different drug discovery programs.
The Company expects to generate revenue by developing screens, providing
screening services, developing and providing UHTS systems to syndicate members,
licensing its proprietary technologies, and realizing royalty and milestone
payments from the development and commercialization of drug candidates
identified using Aurora's technologies. To date, the Company has entered into
collaborative agreements with BMS and Lilly to license the Company's fluorescent
assay technologies for their internal discovery research, to collaborate on
screen development and as initial members of a syndicate to co-develop Aurora's
UHTS system. In addition, Aurora has also entered into agreements to develop
screens for or provide screening services to Sequana Therapeutics, Inc., Allelix
Biopharmaceuticals, Inc. and Roche Bioscience. The Company has also entered into
agreements with Alanex Corporation and ArQule, Inc. providing Aurora with
non-exclusive access to certain of their combinatorial chemistry libraries.
The Company was incorporated in California in May 1995 and reincorporated
in Delaware in January 1996. Unless the context otherwise requires, references
in this Prospectus to "Aurora" and the "Company" refer to Aurora Biosciences
Corporation, a Delaware corporation, and, where applicable, to its California
predecessor. The Company's executive offices are located at 11149 North Torrey
Pines Road, La Jolla, California 92037, and its telephone number is (619)
452-5000.
THE OFFERING
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Common Stock offered hereby........................... 3,000,000 shares
Common Stock to be outstanding after the offering..... 15,895,240 shares(1)
Use of proceeds....................................... Working capital and general corporate
purposes, including enhancement of
internal research and development
capabilities, the acquisition of
chemical libraries, and facilities
expansion and improvements. See "Use
of Proceeds."
Nasdaq National Market symbol......................... ABSC
</TABLE>
- ---------------
(1) Based on shares outstanding as of March 31, 1997. Includes (i) an aggregate
of 45,290 shares of Common Stock to be issued upon exercise of outstanding
warrants and (ii) an aggregate of 9,915,975 shares of Common Stock to be
issued upon conversion of all outstanding shares of Preferred Stock, in each
case upon the closing of this offering. Excludes 581,320 shares of Common
Stock issuable upon exercise of outstanding stock options as of March 31,
1997 at a weighted average exercise price of $1.28 per share and 1,627,408
shares of Common Stock reserved for future grant under the Company's 1996
Stock Plan, Employee Stock Purchase Plan and Non-Employee Directors' Stock
Option Plan. See "Capitalization," "Management," "Description of Capital
Stock" and Notes 6 and 11 of Notes to Financial Statements.
4
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
PERIOD FROM ENDED
MAY 8, 1995 MARCH 31,
(INCEPTION) TO YEAR ENDED ----------------
DECEMBER 31, 1995 DECEMBER 31, 1996 1996 1997
----------------- ----------------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
UHTS system development............ $ -- $ 2,117 $ -- $ 650
Screening services................. -- 100 -- 405
License fees....................... -- -- -- 487
------- ------- ------ -------
Total revenue...................... -- 2,217 -- 1,542
Operating Expenses:
Cost of UHTS system development.... -- -- -- 688
Cost of screening services......... -- -- -- 287
Research and development........... 366 4,396 405 911
General and administrative......... 46 1,275 137 642
Interest income, net.................. -- 521 43 144
Net loss.............................. (412) (2,933) (499) (842)
Pro forma net loss per share(1)....... $ (0.15) $ (0.26) $(0.09) $ (0.06)
Shares used in computing pro forma net
loss per share(1).................. 2,759 11,139 5,837 13,399
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------
ACTUAL AS ADJUSTED(2)
----------------- -----------------
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BALANCE SHEET DATA:
Cash, cash equivalents and investment securities
available for sale..................................... $13,639 $40,939
Total assets............................................. 18,344 45,644
Capital lease obligations, less current portion.......... 1,389 1,389
Accumulated deficit...................................... (4,187) (4,187)
Total stockholders' equity............................... 14,685 41,985
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for a description of the
computation of the pro forma net loss per share and the number of shares
used in the pro forma net loss per share calculation.
(2) As adjusted to give effect to the sale by the Company of 3,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$10.00 per share and the application of the estimated net proceeds therefrom
and the exercise upon the closing of this offering of warrants to purchase a
total of 45,290 shares of Common Stock. See "Use of Proceeds" and
"Capitalization."
Except as otherwise specified, all information contained in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." Except as otherwise noted, all information in this Prospectus
has been adjusted to give effect to (i) the four-for-five reverse split of the
Common Stock effected on April 25, 1997 and (ii) the conversion of all
outstanding shares of Preferred Stock into Common Stock upon the completion of
this offering. See "Capitalization" and "Description of Capital Stock."
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus. This Prospectus contains certain
statements of a forward-looking nature relating to future events or the future
financial performance of the Company. Prospective investors are cautioned that
such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this Prospectus,
including the matters set forth below, which could cause actual results to
differ materially from those indicated by such forward-looking statements.
Limited Operating History; History of Operating Losses; Uncertainty of
Future Profitability. The Company was formed in May 1995, has a limited
operating history and is at an early stage of development. To date, the Company
has not yet generated significant revenue from its systems, services or
technologies. For the period ended December 31, 1995, the year ended December
31, 1996 and the three months ended March 31, 1997, the Company had net losses
of approximately $412,000, $2.9 million and $842,000, respectively. As of March
31, 1997, the Company had an accumulated deficit of $4.2 million. The Company's
expansion of its operations and continued development of its ultra-high
throughput screening ("UHTS") system and fluorescent assay technologies will
require a substantial increase in expenditures for at least the next several
years. The Company currently expects to continue to incur operating losses at
least through 1998. The Company's ability to achieve profitability will depend
in part on its ability to successfully develop and install its UHTS system,
provide screen development and screening services to pharmaceutical and
biotechnology companies, achieve acceptable performance specifications for its
UHTS system and gain industry acceptance of its systems, services and
technologies. Accordingly, the extent of future losses and the time required to
achieve profitability is highly uncertain. The Company has completed less than
two years of operations and is subject to the risks inherent in the operation of
a new business, such as the difficulties and delays often encountered in the
development and production of new, complex technologies. There can be no
assurance that the Company will be able to address these risks. Payments from
corporate collaborators and interest income are expected to be the only sources
of revenue for the foreseeable future. The Company has not yet generated any
revenue from milestones under its collaborative agreements. Royalties or other
revenues from commercial sales of products based upon any compound identified by
using the Company's technologies are not expected for at least several years, if
at all. The time required to reach or sustain profitability is highly uncertain,
and there can be no assurance that the Company will be able to achieve or
maintain profitability. Moreover, if profitability is achieved, the level of
such profitability cannot be predicted and may vary significantly from quarter
to quarter. See "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
New and Uncertain Technology. The Company's UHTS technology and its methods
of screening molecular targets are new and unproven approaches to the
identification of lead compounds with therapeutic potential. The Company intends
to use its UHTS system and fluorescent assay technologies to rapidly identify
for itself and its collaborators as many compounds with commercial potential as
possible. Historically, because of the highly proprietary nature of such
activities, the importance of these activities to drug discovery and development
efforts and the desire to obtain maximum patent and other proprietary protection
on the results of their programs, pharmaceutical and biotechnology companies
have conducted molecular target screening and lead compound identification
within their own internal research departments. The Company's ability to succeed
will be dependent, in part, upon the willingness of potential collaborators to
use the Company's systems, services and technologies as a tool in the discovery
and development of compounds with commercial potential.
The Company's fluorescent assay technologies are novel for use in the drug
discovery process and have never been utilized in the discovery of any compound
that has been commercialized. The
6
<PAGE> 8
Company has not yet completed the development of a screen for any collaborator.
There can be no assurance that the Company's fluorescent assay technologies will
result in the successful development of broadly applicable screens for
collaborators or lead compounds that will be safe or efficacious. Furthermore,
there can be no assurance that the Company can develop, validate or consistently
reproduce its biochemical and cell-based assays or reagents or substrates
required for their use in volumes sufficient to fulfill the requirements of its
collaborative agreements or to meet the Company's needs for internal use.
Development of new pharmaceutical products is highly uncertain, and no assurance
can be given that the Company's drug discovery technology will result in any
commercially successful compound.
The Company's UHTS technology has never been implemented as a fully
operational system. The Company's UHTS system is not expected to be fully
integrated and operational for at least three to four years. The Company's UHTS
system will require significant additional investment and research and
development prior to commencement of full-scale commercial operation, including
integration of complex instrumentation and software and testing to validate
performance and cost effectiveness, and is subject to substantial risks. Complex
instrumentation systems that appear to be promising at early stages of
development may not become fully operational for a number of reasons. These
systems may be found ineffective, be difficult or uneconomical to produce, fail
to achieve expected performance levels or industry acceptance, or be precluded
from commercialization by the proprietary rights of third parties. Much of the
instrumentation and software expected to comprise the Company's UHTS system are
not now and have not previously been used in commercial applications. Many of
these technologies have not been validated or developed at levels necessary to
screen miniaturized assays, and there can be no assurance that UHTS
technologies, if developed, will achieve expected performance levels at these
scales. The successful implementation and operation of the Company's UHTS system
will be a complex process requiring integration and coordination of a number of
factors, including integration of and successful interface between complex
advanced robotics, microfluidics, automated storage and retrieval systems,
fluorescence detector technologies and software and information systems. The
liquid dispensing requirements for the NanoPlates being designed for the UHTS
system are far beyond current high throughput screening practices for dispensing
small volumes. The development of microfluidics to accurately and rapidly
aspirate and dispense the microscopic volumes necessary for the UHTS system is
particularly challenging. There can be no assurance that the Company will be
able to successfully engineer and implement this microfluidics technology or all
of the other instrumentation needed for the UHTS system.
As the system is developed, integrated and used, it is possible that
previously unanticipated limitations or defects may emerge. In addition,
operators using the system may require substantial new technical skills and
training. There can be no assurance that unforeseen complications will not arise
in the development, delivery and operation of the UHTS system that could
materially delay or limit its use by the Company and its corporate
collaborators, substantially increase the anticipated cost of development of the
system, result in the breach by the Company of its contractual obligations to
its collaborators and others, or render the system unable to perform at the
quality and capacity levels required for success. Such complications or delays
could subject the Company to litigation and have other material adverse effects
on the Company's business, financial condition and results of operations. There
can be no assurance that the Company will be able to successfully develop its
UHTS system, achieve anticipated throughputs, gain industry acceptance of the
Company's approach to the identification of lead compounds or develop a
sustainable profitable business.
Dependence on Pharmaceutical and Biotechnology Collaborations. The
Company's strategy for the development and commercialization of its integrated
technology platform involves the formation of multiple corporate collaborations.
To date, all revenue received by the Company has been from its collaborations
and technology alliances. The Company expects that substantially all revenue for
the foreseeable future will come from collaborators. Furthermore, the Company's
ability to achieve profitability will be dependent upon the ability of the
Company to enter into additional
7
<PAGE> 9
corporate collaborations for co-development of the UHTS system as well as for
development of screens and for screening services. Because pharmaceutical and
biotechnology companies engaged in drug discovery activities have historically
conducted drug discovery and screening activities through their own internal
research departments, these companies must be convinced that the Company's UHTS
technologies justify entering into collaborative agreements with the Company.
There can be no assurance that the Company will be able to negotiate additional
collaborative agreements in the future on acceptable terms, if at all, that such
current or future collaborative agreements will be successful and provide the
Company with expected benefits, or that current or future collaborators will not
pursue or develop alternative technologies either on their own or in
collaboration with others, including the Company's competitors, as a means for
identifying lead compounds or targets. To the extent the Company chooses not to
or is unable to enter into such agreements, it will require substantially
greater capital to undertake the research, development and marketing of systems,
services and technologies at its own expense. In the absence of such
collaborative agreements, the Company may be required to delay or curtail its
research and development activities to a significant extent.
In addition, 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 or that the Company will derive any
additional revenue from such agreements. Further, the Company's collaborations
generally may be terminated by its collaborators without cause upon short
notice, which terminations would result in loss of anticipated revenue.
Termination of the Company's existing or future collaboration agreements, or the
failure to enter into a sufficient number of additional collaborative agreements
on favorable terms, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's strategy involves obtaining access to libraries of compounds
from third parties to be screened against multiple targets. Because of the
potential overlap of compounds and targets provided by the Company's
collaborators, there can be no assurance that conflicts will not arise among
collaborators as to rights to particular products developed as a result of being
identified through the use of the Company's technologies. Failure to
successfully manage existing and future collaborator relationships, maintain
confidentiality among such relationships or prevent 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
collaborators, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Uncertainty of Milestone Payments on Pharmaceutical Products."
Future Capital Needs; Uncertainty of Additional Funding. The Company may be
required to raise substantial additional capital over a period of several years
in order to conduct its operations. Such capital may be raised through
additional public or private equity financings, as well as collaborative
arrangements, borrowings and other available sources. The Company depends upon
its corporate collaborators for research and development funding. As of March
31, 1997, the Company had received approximately $4.6 million from its
collaborators. The Company believes that the net proceeds of this offering,
expected revenue from collaborations, existing capital resources and interest
income should be sufficient to fund its anticipated levels of operations at
least through mid-1999. No assurance can be given that the Company's business or
operations will not change in a manner that would consume available resources
more rapidly than anticipated, or that substantial additional funding will not
be required before the Company can achieve profitable operations. There can be
no assurance that the Company will continue to receive funding under the
existing collaborative agreements or that the Company's existing or potential
future collaborative agreements will be adequate to fund the Company's
operations. The Company's capital requirements depend on numerous factors,
including the ability of the Company to enter into additional collaborative
agreements, competing technological and market developments, changes in the
Company's existing
8
<PAGE> 10
collaborative relationships, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights, the purchase of
additional capital equipment, the development of the Company's UHTS system and
the progress of the Company's collaborators' drug development activities. 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 by entering
into arrangements with collaborators or others that may require the Company to
relinquish rights to certain of its systems, services, technologies or potential
markets that the Company would not otherwise relinquish, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. To the extent that additional capital is raised through
the sale of equity or securities convertible into equity, the issuance of such
securities would result in dilution to the Company's stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Management of Growth. The Company's success will depend on its ability to
expand and manage its operations and facilities. To be cost-effective and timely
in the development and installation of its systems, services and technologies,
the Company must coordinate the integration of multiple technologies in complex
systems, both internally and for its collaborators. The Company's officers and
employees have been with the Company for only a limited period of time, and many
of them came to the Company with limited or no experience integrating multiple
technologies into complex systems. There can be no assurance that the Company
will be able to manage its growth, to meet the staffing requirements of current
or additional collaborative relationships or to successfully assimilate and
train its new employees. In addition, to manage its growth effectively, the
Company will be required to expand its management base and enhance its operating
and financial systems. If the Company continues to grow, there can be no
assurance that the management skills and systems currently in place will be
adequate or that the Company will be able to manage any additional growth
effectively. Failure to achieve any of these goals could have a material adverse
effect on the Company's business, financial condition or results of operations.
Dependence on Technology Alliances. In order to further the development of
its UHTS system, the Company has formed and intends to continue to form
technology alliances with certain companies in the areas of informatics,
robotics, automated storage and retrieval, liquid handling systems,
microfluidics and detection devices. The Company relies on these companies, many
of which are single-source vendors, for the development, manufacture and supply
of certain components of the Company's UHTS system. Although the Company
believes that alternative sources for UHTS system components could be made
available, any interruption in the development, manufacture or supply of a
sole-sourced component could have a material adverse effect on the Company's
ability to develop its UHTS system until a new source of supply is qualified,
could subject the Company to penalties for delays in delivery of the UHTS system
and, as a result, could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance the Company will be able to enter into additional technology alliances
on commercially reasonable terms, if at all, or that the Company's current or
future technology suppliers will meet the Company's requirements for quality,
quantity or timeliness.
Dependence on Patents and Proprietary Rights. The Company's success will
depend in part on its ability to obtain patent protection for its systems,
services and technologies, and to operate without infringing the proprietary
rights of third parties. The Company has had no patents issued to date. The
Company is dependent, in part, on the patent rights licensed from third parties
with respect to its fluorescent assay technologies. There can be no assurance
that patent applications filed by the Company or its licensors will result in
patents being issued, that the claims of such patents will offer significant
protection of the Company's technology, or that any patents issued to, or
licensed by, the Company will not be challenged, narrowed, invalidated, or
circumvented. The Company may also be subject to legal proceedings that result
in the revocation of patent rights previously owned by or licensed to the
Company, as a result of which the Company may be required
9
<PAGE> 11
to obtain licenses from others to continue to develop, test or commercialize its
systems, services or technologies. There can be no assurance that the Company
will be able to obtain such licenses on acceptable terms, if at all.
The drug discovery industry, including screening technology companies, has
a history of patent litigation and will likely continue to have patent
litigation suits concerning drug discovery technologies. The patent positions of
pharmaceutical, biotechnology and drug discovery companies, including the
Company, are generally uncertain and involve complex legal and factual
questions. A number of patents have issued and may issue on certain targets or
their use in screening assays that could prevent the Company and its
collaborators from developing screens using such targets, or relate to certain
other aspects of technology utilized or expected to be utilized by the Company.
The Company has received invitations from third parties to license patents owned
or controlled by third parties. The Company evaluates these requests and intends
to obtain licenses that are compatible with its business objectives. There can
be no assurance, however, that the Company will be able to obtain any licenses
on acceptable terms, if at all. The Company's inability to obtain or maintain
patent protection or necessary licenses could have a material adverse effect on
the business, financial condition and results of operations of the Company.
The Company is aware of a third party Patent Cooperation Treaty application
that claims certain uses of green fluorescent protein including its use in
protein kinase assays. If a patent were to issue from such application that
relates to the Company's GFP kinase reporters, the Company believes that such
patent would be unlikely to require the Company to obtain a license. However,
the Company may need to obtain such a license and there can be no assurance that
any such license would be available on commercially reasonable terms, if at all.
The Company is also aware of third party patents and published patent
applications that contain issued or issuable claims that may cover certain
aspects of the Company's or its collaborators' technologies, including certain
types of fluorescent assay methods, certain assays for ligands to certain
classes of targets such as certain cell surface and intracellular receptors, and
certain transcription based assays for chemicals that modulate transcription of
a gene encoding a protein related to disease. There can be no assurance that the
Company would not be required to take a license under any such patents to
practice certain aspects of its fluorescent assay technologies or that such
license would be available on commercially reasonable terms, if at all. Any
action against the Company or its collaborators claiming damages and seeking to
enjoin commercial activities relating to the affected technologies could, in
addition to subjecting the Company to potential liability for damages, require
the Company or its collaborators to obtain a license in order to continue to
develop, manufacture or market the affected technologies. The Company could
incur substantial costs in defending patent infringement claims, obtaining
patent licenses, engaging in interference and opposition proceedings or other
challenges to its patent rights or intellectual property rights made by third
parties, or in bringing such proceedings or enforcing any patent rights against
third parties. The Company's inability to obtain necessary licenses or its
involvement in proceedings concerning patent rights could have a material
adverse effect on the business, financial condition and results of operations of
the Company.
In addition to patent protection, Aurora also relies on copyright
protection, trade secrets, know-how, continuing technological innovation and
licensing opportunities. In an effort to maintain the confidentiality and
ownership of trade secrets and proprietary information, the Company requires
employees, consultants and certain collaborators to execute confidentiality and
invention assignment agreements upon commencement of a relationship with the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets or other confidential
information in the event of unauthorized use or disclosure of such information
or that adequate remedies would exist in the event of such unauthorized use or
disclosure. The loss or exposure of trade secrets possessed by the Company could
adversely affect its business. Like many high technology companies, the Company
may from time to time hire scientific personnel formerly employed by other
companies involved in one or more areas similar to the activities conducted by
the Company. Although the Company requires its employees to maintain the
10
<PAGE> 12
confidentiality of all confidential information of previous employers, there can
be no assurance that the Company or these individuals will not be subject to
allegations of trade secret misappropriation or other similar claims as a result
of their prior affiliations.
Competition and the Risk of Obsolescence of Technology. Competition among
pharmaceutical and biotechnology companies which attempt to identify compounds
for development is intense. Because the Company's UHTS system is being designed
to integrate a number of different technologies, the Company competes in many
areas, including assay development, high throughput screening and functional
genomics. In the pharmaceutical industry, the Company competes with the research
departments of pharmaceutical and biotechnology companies and other commercial
enterprises, as well as numerous academic and research institutions.
Pharmaceutical and biotechnology companies, academic institutions, governmental
agencies and other research organizations are conducting research in various
areas which constitute portions of the Company's technology platform, either on
their own or in collaboration with others. There can be no assurance that
pharmaceutical and biotechnology companies which currently compete with the
Company in specific areas will not merge or enter into joint ventures or other
alliances with one or more other such companies and become substantial
multi-point competitors or that the Company's collaborators will not assemble
their own ultra-high throughput screening systems by purchasing components from
competitors. Genomics and combinatorial chemistry companies may also expand
their business to include compound screening or screen development, either alone
or pursuant to alliances with others. The Company anticipates that it will face
increased competition in the future as new companies enter the market and
advanced technologies, including more sophisticated information technologies,
become available. The Company's technological approaches, in particular its UHTS
system, may be rendered obsolete or uneconomical by advances in existing
technological approaches or the development of different approaches by one or
more of the Company's current or future competitors. Many of these competitors
have greater financial and personnel resources, and more experience in research
and development, than the Company. Historically, pharmaceutical and
biotechnology companies have maintained close control over their research
activities, including the synthesis, screening and optimization of chemical
compounds. Many of these companies, which represent the greatest potential
market for the Company's systems, services and technologies, have developed or
are developing internal programs and other methodologies to improve
productivity, including major investments in robotics technology to permit the
automated screening of compounds.
Uncertainty of Milestone Payments on Pharmaceutical Products. The Company's
future revenue will depend in part on the realization of milestone payments and
royalties, if any, triggered by the successful development and commercialization
of lead compounds identified through the use of the Company's technologies. The
Company's screens may result in developed and commercialized pharmaceutical
products generating milestone payments and royalties only after lengthy and
costly preclinical and clinical development efforts, the receipt of requisite
regulatory approvals, and the integration of manufacturing capabilities and
successful marketing efforts, all of which must be performed by the Company's
collaborators. The commercialization of any such products is highly uncertain
due to the significant research, development, market, regulatory and other risks
associated with the drug development process. With the exception of certain
aspects of preclinical development, the Company does not currently intend to
perform any of these activities. The Company's agreements with its collaborators
do not obligate those parties to develop or commercialize lead compounds
identified through the use of the Company's technologies. Development and
commercialization of lead compounds will therefore depend not only on the
achievement of research objectives by the Company and its collaborators, which
cannot be assured, but also on each collaborator's own financial, competitive,
marketing and strategic considerations, all of which are outside the Company's
control. Such strategic considerations may include the relative advantages of
alternative products being marketed or developed by others, including relevant
patent and proprietary positions. There can be no assurance that the interests
and motivations of the Company's collaborators are, or will remain, aligned with
those of the Company, that current or future
11
<PAGE> 13
collaborators will not pursue alternative technology in preference to that of
the Company or that such collaborators will successfully perform their
development, regulatory, compliance, manufacturing or marketing functions.
Should a collaborator fail to develop or commercialize a lead compound
identified through the use of the Company's technologies, or should such a
compound be determined to be unsafe or of no therapeutic benefit, the Company
will not receive any future milestone payments or royalties associated with such
compound, and the Company may have only limited or no rights to independently
develop and commercialize such compounds or products. In addition, there can be
no assurance that any product will be developed and commercialized as a result
of such collaborations, that any such development or commercialization would be
successful or that disputes will not arise over the application of payment
provisions to such drugs.
Government Regulation. Regulation by the U.S. Food and Drug Administration
(the "FDA") and other 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 collaborator. It is not
currently anticipated that the Company will develop its own drugs through
clinical trials. However, pharmaceutical products, if any, developed by the
Company's collaborators will require lengthy and costly pre-clinical and
clinical trials and regulatory approval by governmental agencies prior to
commercialization. The process of obtaining these approvals and the subsequent
compliance with appropriate federal, state and foreign statutes and regulations
are time consuming and require the expenditure of substantial resources. Delays
in obtaining regulatory approvals would adversely affect the marketing of any
drugs developed by the Company's collaborators, diminish any competitive
advantages that the Company's collaborators may attain and therefore adversely
affect the Company's ability to receive royalties or milestone payments. If the
product is classified as a new drug, a New Drug Application will be required to
be filed with, and product approval must be obtained from, the FDA before
commercial marketing of the drug. These 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.
Attraction and Retention of Key Employees and Consultants. The Company is
highly dependent on the principal members of its scientific and management
staff, as well as its scientific consultants, particularly Drs. Timothy J. Rink,
J. Gordon Foulkes, Harry G. Stylli, Frank F. Craig and Roger Y. Tsien. The loss
of one or more members of its staff could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
does not maintain "key person" insurance on any of its employees. The Company's
future success will also depend in part on its ability to identify, recruit and
retain additional qualified personnel, including individuals holding doctoral
degrees in the basic sciences. There is intense competition for such 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 personnel with the
advanced technical qualifications 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 -- Scientific Advisors" and "Management."
Significant Fluctuations in Quarterly Results. To date, all revenue
received by the Company has been from the payment of license and up-front fees
and research and co-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 such
payments in the future will depend upon the completion of certain milestones as
provided for in such collaborative agreements. In any one 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.
Hazardous Materials. The research and development processes of the Company
involve the controlled use of hazardous materials, chemicals and various
radioactive compounds, including microbial organisms and other biological
materials. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such
12
<PAGE> 14
materials and certain waste products. 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. 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.
Control By Management and Existing Stockholders. Upon completion of this
offering, after giving effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock, the Company's principal stockholders,
executive officers, directors and affiliated individuals and entities together
will beneficially own approximately 56.0% of the outstanding shares of Common
Stock (54.5% if the Underwriters' over-allotment option is exercised in full).
As a result, these stockholders, acting together, will be able to influence
significantly and possibly control most matters requiring approval by the
stockholders of the Company, including approvals of amendments to the Company's
Certificate of Incorporation, mergers, a sale of all or substantially all of the
assets of the Company, going private transactions and other fundamental
transactions. In addition, the Company's Certificate of Incorporation, as it is
proposed to be amended and restated concurrently with the closing of this
offering (the "Restated Certificate"), does not provide for cumulative voting
with respect to the election of directors. Consequently, the present directors
and executive officers of the Company, together with the Company's principal
stockholders, will be able to control the election of the members of the Board
of Directors of the Company. Such a concentration of ownership could have an
adverse effect on the price of the Common Stock, and may have the effect of
delaying or preventing a change in control of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices.
Broad Discretion in Application of Net Proceeds. The net proceeds to the
Company from the sale of the shares of Common Stock offered hereby at an assumed
initial public offering price of $10.00 per share are estimated to be
approximately $27.3 million ($31.5 million if the Underwriters' overallotment
option is exercised in full) after deducting underwriting discounts and
commissions and estimated offering expenses. The Company intends to use the net
proceeds from this offering principally for working capital and general
corporate purposes, including approximately $10.0 million for enhancement of
internal research and development capabilities and the acquisition of chemical
libraries, and approximately $3.5 million for facilities expansion and
improvements. The Company's management and Board of Directors will have broad
discretion with respect to the application of such proceeds, and the amounts
actually expended by the Company for working capital purposes may vary
significantly depending on a number of factors, including future revenue growth,
if any, and the amount of cash, if any, generated by the Company's operations.
See "Use of Proceeds."
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 this offering. The initial public
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. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price. The market prices for securities of comparable companies have
been highly volatile and the market has experienced significant price and volume
fluctuations that are often unrelated to the operating performance of particular
companies. Announcements of technological innovations or new commercial products
by the Company or its competitors, disputes or other developments concerning
proprietary rights, including patents and litigation matters, publicity
regarding actual or potential results with respect to systems, services or
technologies under development by the Company, its collaborative partners or its
competitors, 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 revenues and
financial results and other factors, may have a significant impact on the
13
<PAGE> 15
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 materially
adverse impact on such market price.
Availability of Preferred Stock for Issuance; Anti-Takeover Provisions. The
Restated Certificate authorizes the Board of Directors of the Company, without
stockholder approval, to issue additional shares of Common Stock and to fix the
rights, preferences and privileges of and issue up to 7,500,000 shares of
preferred stock with voting, conversion, dividend and other rights and
preferences that could adversely affect the voting power or other rights of the
holders of Common Stock. The issuance of preferred stock, rights to purchase
preferred stock or additional shares of Common Stock may have the effect of
delaying or preventing a change in control of the Company. In addition, the
possible issuance of preferred stock or additional shares of Common 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 for shares of the Company's Common Stock. Further, the Restated
Certificate provides that any action required or permitted to be taken by
stockholders of the Company must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing.
Special meetings of the stockholders of the Company may be called only by the
Chairman of the Board of Directors, the President of the Company, by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of authorized directors, or by the holders of 10% of the outstanding voting
stock of the Company. These and other provisions contained in the Restated
Certificate and the Company's Bylaws, as well as certain provisions of Delaware
law, could delay or make more difficult certain types of transactions involving
an actual or potential change in control of the Company or its management
(including transactions in which stockholders might otherwise receive a premium
for their shares over then current market prices) and may limit the ability of
stockholders to remove current management of the Company or approve transactions
that stockholders may deem to be in their best interests and, therefore, could
adversely affect the price of the Company's Common Stock.
Shares Eligible for Future Sale and Potential Adverse Effect on Market
Price. Sales of Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. Upon completion of this
offering, the Company will have 15,895,240 shares of Common Stock outstanding,
assuming no exercise of currently outstanding options, but including warrants to
purchase an aggregate of 45,290 shares of Common Stock to be exercised upon the
closing of this offering. Of these shares, the 3,000,000 shares sold in this
offering (plus any additional shares sold upon exercise of the Underwriters'
over-allotment 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. Approximately 10,826,367 shares of
Common Stock will be fully vested and eligible for sale under Securities Act
Rules 144 and 701 on the ninety-first day after the effectiveness of this
offering. Stockholders of the Company, holding an aggregate of 10,762,778 of
these 10,826,367 shares of Common Stock, have agreed pursuant to lock-up
agreements with the Underwriters, 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 Alex. Brown & Sons Incorporated. At the end
of such 180-day period, an additional 217,722 shares of Common Stock (plus
approximately 15,985 shares issuable upon exercise of vested options) will be
eligible for immediate resale, subject to compliance with Rule 144 or Rule 701.
The remainder of the approximately 1,849,725 shares of Common Stock held by
existing stockholders will become eligible for sale at various times over a
period of two years and could be sold earlier if the holders exercise any
available registration rights. The holders of 9,915,975 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 beginning at the end of
the 180 day lock-up period. 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 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
14
<PAGE> 16
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 a registration statement on Form S-8 registering a
total of approximately 2,170,168 shares of Common Stock subject to outstanding
stock options or reserved for issuance under the Company's stock option plans.
Such registration statement is expected to be filed and to become effective as
soon as practicable after the effective date of this offering. Shares registered
under such registration statement will, subject to Rule 144 volume limitations
applicable to affiliates, be available for sale in the open market, unless such
shares are subject to vesting restrictions with the Company or the lock-up
agreements described above. See "Management," "Description of Capital
Stock -- Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
Immediate and Substantial 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 public offering
price. Additional dilution will occur upon exercise of outstanding options. See
"Dilution" and "Shares Eligible for Future Sale."
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby at an assumed public offering price of $10.00 per
share are estimated to be $27.3 million ($31.5 million if the Underwriters'
over-allotment option is exercised in full) after deducting underwriting
discounts and commissions and estimated offering expenses.
The Company intends to use the net proceeds from this offering principally
for working capital and general corporate purposes, including approximately
$10.0 million for enhancement of internal research and development capabilities
and the acquisition of chemical libraries, and approximately $3.5 million for
facilities expansion and improvements. The amounts actually expended by the
Company for working capital purposes will vary significantly depending on a
number of factors, including future revenue growth, if any, and the amount of
cash, if any, generated by the Company's operations. The Company's management
will retain broad discretion in the allocation of the net proceeds of this
offering. The Company may also use a portion of the net proceeds to fund
acquisitions of complementary technologies, products or businesses, although the
Company has no current agreements or commitments for any such acquisition.
Pending such uses, the Company intends to invest the net proceeds of this
offering in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
To date, the Company has never declared nor paid any cash dividends on its
Common Stock. The Company currently intends to retain any earnings for funding
growth and, therefore, does not intend to pay any cash dividends on its Common
Stock in the foreseeable future.
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<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 (i) on an actual basis after giving effect to the conversion of
all outstanding Preferred Stock into 9,915,975 shares of Common Stock and (ii)
as adjusted to give effect to the receipt by the Company of the estimated net
proceeds from the sale of 3,000,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $10.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses, and the
exercise upon the closing of this offering of outstanding warrants to purchase
an aggregate of 45,290 shares of Common Stock:
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations, less current portion(1)................... $ 1,389 $ 1,389
Stockholders' equity:
Preferred stock, $.001 par value, 25,000,000 shares authorized,
actual, and 7,500,000 shares authorized, as adjusted; no shares
issued or outstanding, actual and as adjusted................... -- --
Common stock, $.001 par value, 50,000,000 shares authorized;
12,849,950 shares issued and outstanding, actual; 15,895,240
shares issued and outstanding, as adjusted (2).................. 13 16
Additional paid-in capital......................................... 22,336 49,633
Deferred compensation, net......................................... (3,477) (3,477)
Accumulated deficit................................................ (4,187) (4,187)
------- -------
Total stockholders' equity...................................... 14,685 41,985
------- -------
Total capitalization....................................... $16,074 $43,374
======= =======
</TABLE>
- ---------------
(1) See Note 5 of Notes to Financial Statements for a description of the
Company's capital lease obligations.
(2) Excludes 581,320 shares of Common Stock issuable upon exercise of
outstanding stock options as of March 31, 1997 at a weighted average
exercise price of $1.28 per share and 1,627,408 shares of Common Stock
reserved for future grant under the Company's 1996 Stock Plan, Employee
Stock Purchase Plan and Non-Employee Directors' Stock Option Plan. See
"Capitalization," "Management," "Description of Capital Stock" and Notes 6
and 11 of Notes to Financial Statements.
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<PAGE> 19
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997
was approximately $14.6 million, or $1.13 per share. Pro forma net tangible book
value per share represents the amount of the Company's total tangible assets
less total liabilities divided by 12,895,240 shares of Common Stock outstanding
after giving effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock and the exercise upon the closing of this offering of
outstanding warrants to purchase an aggregate of 45,290 shares of Common Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of the Offering. After giving effect
to the sale of the 3,000,000 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $10.00 per share and the
application of the net proceeds therefrom, the Company's pro forma net tangible
book value at March 31, 1997 would have been approximately $41.9 million, or
$2.63 per share. This represents an immediate increase in pro forma net tangible
book value of $1.50 per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $7.37 per share to new investors
purchasing Common Stock in this offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $10.00
Pro forma net tangible book value per share as of March 31, 1997........ $1.13
Increase per share attributable to new investors........................ 1.50
-----
Pro forma net tangible book value per share after this offering........... 2.63
------
Net tangible book value dilution per share to new investors............... $ 7.37
======
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1997,
the differences between the existing stockholders and the purchasers of shares
in this offering (at an assumed initial public offering price of $10.00 per
share) with respect to the number of shares purchased from the Company, the
total consideration paid and the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............. 12,895,240 81.1% $18,881,000 38.6% $ 1.46
New investors........................ 3,000,000 18.9 30,000,000 61.4 $ 10.00
---------- ----- ----------- -----
Total.............................. 15,895,240 100.0% $48,881,000 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Excludes 581,320 shares of Common Stock issuable upon exercise of
outstanding stock options as of March 31, 1997 at a weighted average
exercise price of $1.28 per share and 1,627,408 shares of Common Stock
reserved for future grant under the Company's 1996 Stock Plan, Employee
Stock Purchase Plan and Non-Employee Directors' Stock Option Plan. See
"Capitalization," "Management," "Description of Capital Stock" and Notes 6
and 11 of Notes to Financial Statements. To the extent that outstanding
options are exercised in the future, there may be further dilution to new
stockholders.
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<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data presented below for the period from May 8, 1995
(inception) to December 31, 1995 and the year ended December 31, 1996 and at
December 31, 1995 and 1996 are derived from the Company's financial statements
audited by Ernst & Young LLP, independent auditors, which are included elsewhere
in this Prospectus. The statement of operations data for the three months ended
March 31, 1996 and 1997 and the balance sheet data at March 31, 1997 are derived
from unaudited financial statements also included elsewhere in this Prospectus,
which, in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the financial
position and results of operations of the Company for the unaudited interim
periods. The statement of operations data for the interim periods are not
necessarily indicative of results that may be expected for any other interim
period or for the year as a whole. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
PERIOD FROM ENDED
MAY 8, 1995 MARCH 31,
(INCEPTION) TO YEAR ENDED -----------------
DECEMBER 31, 1995 DECEMBER 31, 1996 1996 1997
------------------- ----------------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
UHTS system development......... $ -- $ 2,117 $ -- $ 650
Screening services.............. -- 100 -- 405
License fees.................... -- -- -- 487
----- ------- ------ ------
Total revenue................... -- 2,217 -- 1,542
Operating expenses:
Cost of UHTS system
development................... -- -- -- 688
Cost of screening services...... -- -- -- 287
Research and development........ 366 4,396 405 911
General and administrative...... 46 1,275 137 642
----- ------- ------ ------
Total operating expenses........ 412 5,671 542 2,528
Interest income, net............... -- 521 43 144
----- ------- ------ ------
Net loss........................... $ (412) $(2,933) $ (499) $ (842)
===== ======= ====== ======
Pro forma net loss per share (1)... $ (0.15) $ (0.26) $(0.09) $(0.06)
Shares used in computing pro forma
net loss per share (1).......... 2,759 11,139 5,837 13,399
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1996 MARCH 31, 1997
------------------- ----------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investment
securities available for sale...... $ 11 $13,167 $ 13,639
Total assets......................... 115 17,515 18,344
Capital lease obligations, less
current portion.................... -- 1,111 1,389
Accumulated deficit.................. (412) (3,345) (4,187)
Total stockholders' equity........... (412) 15,184 14,685
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for a description of the
computation of the pro forma net loss per share and the number of shares
used in the pro forma net loss per share calculation.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in this Prospectus, including the matters set forth under the
caption "Risk Factors," which could cause actual results to differ materially
from those indicated by such forward-looking statements.
OVERVIEW
Aurora Biosciences Corporation ("Aurora" or the "Company") designs and
develops proprietary drug discovery systems, services and technologies to
accelerate and enhance the discovery of new medicines. From May 8, 1995
(inception) to December 31, 1995, the Company's operating activities related
primarily to recruitment of personnel and raising capital. Operating activities
since the beginning of 1996 have focused on the development of Aurora's
portfolio of proprietary fluorescent assay technologies, as well as the
development of its ultra-high throughput screening ("UHTS") system, designed to
integrate advanced instrumentation and miniaturized assays. The Company has
incurred losses since inception and, as of March 31, 1997, had an accumulated
deficit of $4.2 million.
The Company's ability to achieve profitability will depend in part on its
ability to successfully develop the UHTS system, provide screen development and
screening services to pharmaceutical and biotechnology companies, achieve
acceptable performance specifications for its UHTS system, and gain industry
acceptance of its systems, services and technologies. Payments from corporate
collaborators and interest income are expected to be the only sources of revenue
for the foreseeable future. The Company has not yet generated any revenue from
milestones under its collaborative agreements. Royalties or other revenue from
commercial sales of products developed from any compound identified by using the
Company's technologies are not expected for at least several years, if at all.
Payments under collaborative agreements will be subject to significant
fluctuation in both timing and amount and therefore the Company's results of
operations for any period may not be comparable to the results of operations for
any other period.
In November 1996 and December 1996, Aurora announced collaborative
agreements with Bristol-Myers Squibb ("BMS") and Eli Lilly and Company
("Lilly"). Under the terms of each of the BMS and Lilly agreements, the Company
is required to develop and separately install three components to be integrated
into one complete UHTS system. The Company will also co-develop with each party
high throughput screening assays for use by such party. Each party will also
have the right to use the Company's fluorescent assay technologies for internal
research and drug development, including the development of screening assays.
Aurora has also entered into drug discovery collaborations with Sequana
Therapeutics, Inc., Alanex Corporation and ArQule, Inc. and into strategic
technology alliances for UHTS system development with several companies
including Packard Instrument Company ("Packard") and Carl Creative Systems, Inc.
Additionally, in December 1996 Aurora signed a collaborative agreement with
Roche Bioscience Corporation ("Roche") to access one of the Company's
fluorescent assay technologies and to develop specialized instrumentation, and
in February 1997 an agreement was entered into with Allelix Biopharmaceuticals,
Inc. ("Allelix") requiring Aurora to develop screening assays and perform
screening services. See "Business -- Corporate Collaborations" and "-- UHTS
Technology Alliances."
Revenue typically consists of non-refundable up-front fees, ongoing
research and co-development payments, and milestone, royalty and other
contingent payments. Revenue from non-refundable up-front fees is recognized
upon signing of the agreement. Revenue from ongoing research and
20
<PAGE> 22
co-development payments is recognized ratably over the term of the agreement,
and the Company believes such payments will approximate the research and
development expense being incurred in connection with the agreement. Revenue
from milestone, royalty and other contingent payments will be recognized as
earned. Revenue from screen development and screening and other services is
recognized as earned. Advance payments received under any agreements in excess
of amounts earned are classified as unearned revenue. Revenue under cost
reimbursement contracts is recognized as the related costs are incurred. The
Company records and amortizes over the related vesting periods deferred
compensation representing the difference between the price of stock issued or
options granted and the deemed fair market value of the Common Stock at the time
of issue or grant. Stock and options generally vest over a four-year period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Revenue related to UHTS system development, screening services and license
fees totaled $650,000, $405,000 and $488,000, respectively, for the three months
ended March 31, 1997. There was no revenue in the three months ended March 31,
1996. The first quarter 1997 revenue resulted from the Company's collaborative
agreements with BMS, Lilly, Roche and Allelix and the technology alliance with
Packard.
Costs of UHTS system development and screening services totaled $688,000
and $287,000, respectively, for the three months ended March 31, 1997. There was
no cost of revenue for the three months ended March 31, 1996.
Research and development expenses increased to $911,000 for the three
months ended March 31, 1997 from $405,000 in the three months ended March 31,
1996. The increase in research and development expenses was attributable to
increased research and development personnel expenses, increased equipment and
depreciation and facilities expenses in connection with the expansion of
operations, payments under technology development and license agreements and the
purchase of laboratory supplies.
General and administrative expenses increased to $642,000 in the three
months ended March 31, 1997 from $137,000 in the three months ended March 31,
1996. The increase was primarily attributable to increased management and
administrative personnel expenses, increased depreciation expense from the
acquisition of equipment in connection with the expansion of operations, and
legal and professional fees incurred in connection with the overall scale-up of
the Company's operations and business development efforts.
Deferred compensation of approximately $3.2 million was recorded in the
three months ended March 31, 1997, of which $106,000 was recognized as expense
during the period.
The Company had net interest income of $144,000 in the three months ended
March 31, 1997 resulting from interest earned on proceeds from private
placements of equity securities and payments received under collaborative
agreements, partially offset by interest expense incurred on capital lease
obligations entered into in 1996 and 1997. The Company had interest income of
$43,000 in the three months ended March 31, 1996.
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM MAY 8, 1995 (INCEPTION) TO
DECEMBER 31, 1995
Revenue related to UHTS system development and screening services totaled
$2.1 million and $100,000, respectively, for the year ended December 31, 1996.
There was no license fees revenue during the period. The Company had no revenue
during the period from May 8, 1995 (inception) through December 31, 1995 ("the
1995 Period"). The 1996 revenue resulted from the Company's collaborative
agreements with BMS, Lilly and Roche and the technology alliance with Packard.
There was no cost of UHTS system development or screening services for
either 1996 or the 1995 Period.
21
<PAGE> 23
Research and development expenses increased to $4.4 million in 1996 from
$366,000 in the 1995 Period as the Company began the development of its UHTS
system and fluorescence technologies. The increase in research and development
expenses was attributable to increased research and development personnel
expenses, increased equipment and depreciation and facilities expenses in
connection with the establishment of operations, payments under technology
development and license agreements, purchase of laboratory supplies and
increased expenses associated with the compensation paid to the Company's
scientific advisors.
General and administrative expenses increased to $1.3 million in 1996 from
$46,000 in the 1995 Period. The increase was primarily attributable to increased
management and administrative personnel expenses, increased depreciation
expenses from the acquisition of equipment in connection with the establishment
of operations and legal and professional fees incurred in connection with the
overall scale-up of the Company's operations and business development efforts.
Deferred compensation in the amount of approximately $374,000 was recorded
as of December 31, 1996.
The Company had net interest income of $521,000 in 1996 resulting from
interest earned on cash and investment securities derived from private
placements of equity securities, partially offset by interest expense incurred
on capital lease obligations entered into in 1996. The Company did not earn
interest income or incur interest expense in the 1995 Period.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, Aurora held cash, cash equivalents and investment
securities of $13.6 million and working capital of $12.3 million. The Company
has funded its operations to date primarily through private placements of equity
securities with aggregate net proceeds of approximately $18.7 million, capital
equipment lease financing totaling $2.1 million and interest income earned on
the net proceeds of its private placements. Receipts from corporate
collaborations and strategic technology alliances totaled $4.7 million through
March 31, 1997.
The Company has entered into various strategic technology agreements with
third parties regarding the development of instrumentation technology which
require the Company to make future payments totaling $1.2 million in 1997 and
1998 if all milestones are met. In addition, the Company has entered into
license agreements with third parties regarding certain inventions and
technologies for which the Company is obligated to make future payments totaling
$830,000 over the next seven years.
To date, all revenue received by the Company has been from its
collaborations and technology alliances. The Company expects that substantially
all revenue for the foreseeable future will come from collaborators and interest
income. Furthermore, the Company's ability to achieve profitability will be
dependent upon the ability of the Company to enter into additional corporate
collaborations. There can be no assurance that the Company will be able to
negotiate additional collaborative agreements in the future on acceptable terms,
if at all, or that such current or future collaborative agreements will be
successful and provide the Company with expected benefits.
The Company believes that the net proceeds from this offering, expected
revenue from collaborations, existing capital resources and interest income
should be sufficient to fund its anticipated levels of operations at least
through mid-1999. No assurance can be given that the Company's business or
operations will not change in a manner that would consume available resources
more rapidly than anticipated, or that substantial additional funding will not
be required before the Company can achieve profitable operations. The Company's
capital requirements depend on numerous factors, including the ability of the
Company to enter into additional collaborative agreements, 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 develop-
22
<PAGE> 24
ment of the Company's UHTS system and the progress of the Company's
collaborators' milestone and royalty-producing activities. 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 by entering into
arrangements with collaborators or others that may require the Company to
relinquish rights to certain of its systems, services, technologies or potential
markets that the Company would not otherwise relinquish, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
23
<PAGE> 25
BUSINESS
OVERVIEW
Aurora Biosciences Corporation ("Aurora" or the "Company") designs and
develops proprietary drug discovery systems, services and technologies to
accelerate and enhance the discovery of new medicines. Aurora is developing an
integrated technology platform comprised of a portfolio of proprietary
fluorescent assay technologies and an ultra-high throughput screening ("UHTS")
system designed to allow assay miniaturization and to overcome many of the
limitations associated with the traditional drug discovery process. The Company
believes that this platform will enable Aurora and its collaborators, which
include Bristol-Myers Squibb ("BMS") and Eli Lilly and Company ("Lilly"), to
take advantage of the opportunities created by recent advances in genomics and
combinatorial chemistry that have generated many new therapeutic targets and an
abundance of new small molecule compounds. Aurora believes its integrated
platform will accelerate the drug discovery process by shortening the time
required to identify high quality lead compounds and to optimize those compounds
into drug development candidates.
Aurora's goal is to become the leader in the development and
commercialization of technologies that will accelerate and enhance the discovery
of new medicines. The Company seeks to diversify business risk by generating
revenue from multiple collaborators seeking to exploit Aurora's fluorescent
assay technologies and UHTS system in many different drug discovery programs.
The Company expects to generate revenue by developing screens, providing
screening services, developing and providing UHTS systems to syndicate members,
licensing its proprietary technologies, and realizing royalty and milestone
payments from the development and commercialization of drug candidates
identified using Aurora's technologies. To date, the Company has entered into
collaborative agreements with BMS and Lilly to license the Company's fluorescent
assay technologies for their internal discovery research, to collaborate on
screen development and as initial members of a syndicate to co-develop Aurora's
UHTS system. In addition, Aurora has also entered into agreements to develop
screens for or provide screening services to Sequana Therapeutics, Inc.
("Sequana"), Allelix Biopharmaceuticals, Inc. ("Allelix") and Roche Bioscience
("Roche"). The Company has also entered into agreements with Alanex Corporation
("Alanex") and ArQule, Inc. ("ArQule") providing Aurora with non-exclusive
access to certain of their combinatorial chemistry libraries.
THE DISCOVERY OF NEW MEDICINES
Drug discovery methods generally involve the synthesis and testing of large
libraries of different compounds in relatively simple assays, or tests,
containing targets designed to mimic aspects of a disease process. Assays are
employed to determine the effect of a compound upon a particular target. When
applied methodically, assays can be used as screens to identify active
chemicals, referred to as "hits," that may produce a desired effect upon a
target's function. Lead compounds can be identified by additional screening of
hits and may then be optimized to generate candidate compounds for development
as potential medicines.
- --------------------------------------------------------------------------------
ELEMENTS OF THE DRUG DISCOVERY PROCESS
Targets Assays SCREENING Libraries of Compounds
Hits
Lead Compounds
Candidate Compounds
Drug Development
- --------------------------------------------------------------------------------
24
<PAGE> 26
TARGETS
Targets are specific biological molecules, often proteins such as
receptors, enzymes or ion channels, which are believed to play a role in the
onset or progression of disease. Most drugs work by binding to a target and
modulating the target's biological function or activity. Thus, most drugs are
discovered by identifying compounds that modulate an established target's
biological function. Until recently, pharmacologists and molecular biologists
had identified only a few hundred targets using conventional methods.
Recent developments in molecular biology and genomics have led to a
dramatic increase in the number of potential therapeutic targets available for
drug discovery. The chemical information required for cells to produce proteins
is encoded in genes. It is currently estimated that several thousand of the
roughly 100,000 different human genes encode potential targets. Industrial and
academic researchers have already identified tens of thousands of new genes as
they decipher the genomes of both humans and disease-causing organisms.
Determining the function of these genes and the proteins they encode, including
their evaluation as potential targets, is known as functional genomics and can
be a rate-limiting step in the selection of novel targets for drug discovery.
The large number of newly discovered targets has created the need for faster
screen development and higher throughput screening.
COMPOUNDS
Traditionally, chemists laboriously synthesized new compounds one at a
time, or painstakingly isolated them from natural sources, such as plants or
microbial fermentation broths. Over decades, chemists in major pharmaceutical
and chemical companies built up collections, or libraries, of hundreds of
thousands of compounds. During the last few years, however, many industrial and
academic groups have developed combinatorial chemistry techniques to greatly
increase the supply and diversity of small molecules for screening. Already,
many companies have used combinatorial chemistry to quickly create libraries of
hundreds of thousands, or even millions, of small molecules, which are now
available to be tested against both established and novel targets to yield
potential lead compounds for new medicines. These vast numbers of compounds
present a substantial challenge to the drug discovery process and create a need
for faster and more efficient screening.
ASSAYS
Targets can be incorporated into either biochemical or cell-based assays. A
biochemical assay consists of a target which is isolated from its natural
cellular environment. If enough of the target can be isolated, such assays can
be relatively simple to develop and perform. It is often desirable, however, to
test compounds on targets functioning in the environment of living human or
other mammalian cells. Such cell-based assays provide a number of advantages,
including in many cases greater predictive value of therapeutic effect and
potential toxicity. In addition, cell-based assays may be required to screen
certain targets not readily amenable to biochemical assays. However, cell-based
assays have typically been more difficult and time consuming both to develop and
to perform due to difficulties in detecting the function of a target in a living
cell and the inherent technical complexities of using human or other mammalian
cells in drug screens.
SCREENING
Screening is the process of methodically testing libraries of compounds for
potential therapeutic value by using assays to determine if any compounds affect
a selected target. Primary screening determines if any of the compounds tested
are hits. Re-testing confirms initial hits and secondary screening refines the
initial evaluation of hits. For example, secondary screening may measure a hit's
potency (the amount of the hit compound required to exert its effect) and
specificity (the degree to which the hit does not affect unintended targets).
These secondary screens help in selecting lead compounds for further discovery
efforts to identify candidate compounds for development.
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<PAGE> 27
Until the last five to ten years, screening was a labor intensive manual
process in which it was generally possible to test only tens of compounds per
day. Today, pharmaceutical and biotechnology companies with advanced drug
discovery programs use semi-automated or robotic high throughput screening
systems with microtiter plates that contain 96 separate wells for assays.
Certain current best practice screening systems can operate at throughputs of up
to approximately 10,000 discrete compounds per day per system, but typically
such systems operate at throughputs of less than 3,000 discrete compounds per
day.
THE NEED TO IMPROVE THE DRUG DISCOVERY PROCESS
The discovery and development of new medicines remains an expensive,
time-consuming and often unsuccessful process. Although many pharmaceutical,
biotechnology and clinical research organizations have significantly improved
the efficiency of the drug development phase, only about five to ten percent of
candidate compounds entering development will ultimately be approved for
marketing. Candidate compounds that are identified in discovery frequently fail
in the development phase due to insufficient therapeutic benefit or unexpected
side effects. To date, efforts to improve the initial discovery process have
been inadequate. If the discovery process were sufficiently improved,
pharmaceutical and biotechnology companies could more quickly and efficiently
discover larger numbers of higher quality candidate compounds that have a
greater chance of development into medicines that meet significant unmet needs.
The dramatic increases in the number of potential targets and the size of
compound libraries resulting from advances in genomics and combinatorial
chemistry, respectively, have created a significant opportunity to discover
greater numbers of higher quality lead compounds for development into medicines.
However, the increasing numbers of targets and compounds have created severe
bottlenecks in the drug discovery process. These bottlenecks result from the
difficulty of quickly analyzing function and disease relevance of newly
discovered targets, the complexity of incorporating the many different types of
targets into screens, and the inability to screen extensive compound libraries
quickly and at a reasonable cost.
AURORA'S APPROACH
TECHNOLOGY PLATFORM
Aurora is developing an integrated technology platform designed to allow
assay miniaturization and to overcome many of the limitations associated with
traditional drug discovery and enable the Company and its collaborators to take
advantage of the recent advances in genomics and combinatorial chemistry. The
two principal components of Aurora's platform are its proprietary fluorescent
assay technologies and its highly automated ultra-high throughput screening
system that is being designed to screen over 100,000 discrete compounds per day
per system in miniaturized assays.
Aurora's fluorescent assay technologies are being used today to facilitate
drug discovery by the Company's collaborators and in the Company's existing high
throughput screening system. In addition, the Company is currently developing
screens for collaborators which it expects to deliver in the next several
months. To significantly advance current high throughput screening capabilities
and to exploit the power of its fluorescent assay technologies, Aurora is
developing an ultra-high throughput screening system over the next three to four
years. Aurora believes that this integrated technology platform will allow
Aurora and its collaborators to accelerate the drug discovery process by
shortening the time required to identify higher quality lead compounds and to
optimize those compounds into drug development candidates.
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<PAGE> 28
AURORA'S INTEGRATED TECHNOLOGY PLATFORM
[FLUORESCENT ASSAY TECHNOLOGIES] [ULTRA-HIGH THROUGHPUT SCREENING SYSTEM]
POTENTIAL BENEFITS
<TABLE>
<S> <C>
Applicable to most targets Reduced assay volumes
Cell-based and biochemical assays Simplified screening process
Faster assay development Versatile screening platform
Functional genomics in mammalian cells Automated access to compound libraries
Miniaturized assays Throughputs of 100,000 compounds per day
</TABLE>
The following are key features of Aurora's integrated technology platform:
Ability to Design Assays for a Broad Range of Targets. Aurora's portfolio
of novel fluorescent assay technologies is designed to enable screening
against nearly all major classes of human drug targets, including
receptors, ion channels and enzymes, in most therapeutic areas.
Ability to Conduct Both Cell-based and Biochemical Assays. Aurora's
fluorescent assay technologies include both cell-based and biochemical
approaches. Many of the Company's screens are being designed to be
performed with living mammalian cells to better model human disease
processes. In addition a cell-based approach may be needed because certain
important targets may not be amenable to biochemical assays.
Reduction in Time and Investment Required to Develop Cell-based
Assays. Aurora's fluorescent reporter technologies are highly sensitive.
The b-lactamase reporter system, for example, enables the measurement of
certain activation responses within a single living mammalian cell. For
many drug targets, this feature permits the rapid genetic selection and
multiplication of cells with optimal properties for particular screens,
which can reduce the time required for screen development from months, with
conventional methods, down to a few weeks.
Ability to Analyze Gene Function in Living Mammalian Cells. Certain of the
Company's fluorescent assay technologies may facilitate the understanding
of gene function in human and other mammalian cells. The Company believes
that this approach complements genetic approaches which employ fruit flies,
worms or yeast, and allows the functional analysis of human genes in a more
appropriate cellular context. This technology, if fully developed, could
prove valuable to companies with significant involvement in the genomics
area.
Increased Throughput and Reduced Costs Through Miniaturization of
Assays. The sensitivity and ratiometric readouts of Aurora's fluorescent
reporter technologies permit development of miniaturized assays, important
for cost-effective ultra-high throughput screening. The Company's
scientists have miniaturized both cell-based and biochemical assays for
certain applications. The Company believes that its assays will allow
increased throughput with decreased costs.
Advanced Instrumentation for Small Volumes. The Company is developing novel
screening plates (NanoPlates) and innovative microfluidics to enable
miniaturized assays in volumes approximately 100 times smaller than
conventional screens. Smaller volumes reduce the amount of expensive or
scarce reagents that may be required in a screen.
Simplified Screening Process. Most conventional high throughput screens
require special liquid handling devices to perform liquid dispensing and
washing steps before the data can be
27
<PAGE> 29
obtained from a screen. Liquid handling and washing often cause such long
delays in screening that it may be impossible to measure certain events as
they happen in real time. The Company's screens are designed to function
with a significantly reduced number of liquid handling steps and without
washing steps.
Versatile Ultra-high Throughput Screening Platform. The Company is
developing novel fluorescence instrumentation and NanoPlates to enable a
wide variety of targets to be screened in cell-based or biochemical assays
in the UHTS system. The Company believes that other systems being designed
for ultra-high throughput screening may be more restricted to certain
target classes and assay types.
Automated Access to Compound Libraries. Ultra-high throughput screening
requires automated rapid access both to organized collections of large
compound libraries, as well as to individual compounds in the collection
for re-testing. Aurora is unaware of any system currently available with
such capabilities. The Company is developing a compound storage and
retrieval system designed to allow fully automated access to over 1,000,000
compounds, for itself and each of its syndicate members.
Ultra-high Throughput. Aurora's technology platform is designed to
integrate the Company's proprietary fluorescent assays and automated
miniaturized systems with advanced informatics to create an ultra-high
throughput screening system capable of testing more than 100,000 discrete
compounds per day per system. If realized, this throughput would be over
ten times faster than current best practice high throughput screening
systems and would test each compound at a fraction of current costs.
BUSINESS STRATEGY
Aurora's goal is to become the leader in the development and
commercialization of technologies to accelerate and enhance the discovery of new
medicines. The Company seeks to diversify business risk by generating revenue
from multiple collaborators seeking to exploit Aurora's fluorescent assay
technologies and ultra-high throughput screening system in many different drug
discovery programs. To implement this strategy, the Company intends to:
Generate Multiple Revenue Streams from Screen Development and Screening
Services. Aurora generates revenue from multiple collaborators by
developing screens, primarily on a non-exclusive basis, for diverse targets
and providing screening services. To date, Aurora has entered into
agreements for screen development with pharmaceutical and biotechnology
companies, including BMS, Lilly, Roche and Allelix. The Company develops
screens with respect to specific targets rather than for broad therapeutic
areas. The developed screen is then either transferred to the collaborator
for internal research or is utilized by Aurora to provide screening
services. When Aurora provides such screening services, it will use a high
throughput screening system to screen the compounds for and provide
information and potential lead candidates to its collaborators.
Additionally, the Company is entitled to receive milestone payments and
royalties if any compound discovered through such screening is developed
and commercialized. Aurora plans to greatly enhance such screening services
once its own UHTS system is available for screening.
Establish a Syndicate for the Co-development of Aurora's UHTS
System. Aurora is currently establishing a syndicate consisting of up to
six leading pharmaceutical companies to co-develop Aurora's UHTS system.
Aurora has entered into collaborative agreements with BMS and Lilly as
initial syndicate members. Each member is scheduled to receive its own UHTS
system over a three- to four-year period for use in its internal drug
discovery programs. Through the syndicate, Aurora is able to share the cost
of the development of the UHTS system and offer to its syndicate members
co-exclusive access to the system. The Company believes that the payments
made by each syndicate member will be significantly lower than the cost for
any one company to develop a similar system on its own.
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<PAGE> 30
Expand Compound Libraries. In providing screening services, Aurora will
utilize compounds that are either supplied by its collaborators or from
compound libraries to which Aurora has access. In order to provide
additional opportunity for Aurora and its collaborators, the Company is
obtaining access to libraries of compounds focused on small molecules, but
also including selected natural product extracts, peptides and proteins. To
gain access to these diverse sets of compounds, the Company plans to enter
into collaborations with companies specializing in combinatorial chemistry
and natural extract discovery and purification, and to purchase compounds
from available commercial sources. To date, Aurora has entered into
agreements with Alanex and ArQule, providing Aurora with non-exclusive
access to certain of their combinatorial chemistry libraries.
Form Biotechnology Collaborations. Aurora is seeking to collaborate with
genomics companies that may have access to considerable numbers of
potentially important new targets, and with therapeutically focused
companies that have promising discovery programs with validated targets,
for which Aurora's screening technology could substantially accelerate the
identification of lead or candidate compounds. To date, Aurora has entered
into such collaborations with Allelix and Sequana. Aurora is also
considering providing screening services in three-party collaborations
among Aurora, genomics companies or other companies that provide targets
and specialized biologic expertise, and combinatorial chemistry companies
that provide compounds and chemical optimization expertise.
Develop Information Tools and Databases. Utilizing the fluorescent assay
technologies and the UHTS system, the Company expects to have the ability
to generate and analyze large amounts of complex information on molecular
and genomic targets and large numbers of chemical structures. Aurora
intends to exploit these applications of its technology either directly or
in collaborations with leaders in the areas of informatics, genomics and
drug discovery. Ultimately, the Company plans to leverage this information
to create new revenue opportunities in the future.
Maintain Technology Leadership. The Company has assembled a unique
multi-disciplinary team of scientists from leading companies in the
biology, chemistry, instrumentation, automation and computer science
industries. Aurora intends to continue investing significantly in research
and development in order to make advances in its core technologies and to
maintain its technology leadership. The Company also intends to continue to
form strategic technology alliances with leading companies from each of
these industries and with leading academic institutions to provide the
Company with access to those parties' technologies and expertise.
AURORA'S TECHNOLOGY
The two principal components of Aurora's integrated technology platform are
its proprietary fluorescent assay technologies and its highly automated
ultra-high throughput system that is being developed for screening miniaturized
assays. This unique platform results from the Company's innovative integration
of many different disciplines, including fluorescence chemistry, biophysics,
molecular biology, protein engineering, automation, process control, optics,
microfluidics, informatics and software development.
AURORA'S PROPRIETARY FLUORESCENT ASSAY TECHNOLOGIES
The Company has internally developed or licensed a broad range of
proprietary fluorescent assay technologies which the Company believes exhibit
significant advantages over existing screening assays. The Company's fluorescent
assay technologies utilize light glowing from fluorescent molecules to reveal
molecular and cellular activity with precision and sensitivity. Fluorescence is
the property of certain molecules to absorb and be excited by light of one color
(excitation wavelength) and to send, or emit, light of another color having a
longer wavelength (emission wavelength). Aurora's fluorescent assay technologies
allow monitoring of the function of tiny
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<PAGE> 31
amounts of biomolecules in a non-destructive manner, and therefore many aspects
of cell function can now be observed in single living cells.
Aurora's fluorescent assay technologies generally exploit certain special
types of fluorescence measurements, including ratiometric and fluorescence
resonance energy transfer measurements. These features enable highly accurate
data to be obtained in high throughput screening, significantly reducing the
number of replicates and the cost required to carry-out such screens. As used in
the Company's fluorescent assay technologies, these approaches provide a change
in color of the emitted light rather than just a change in the intensity of the
emitted light. Ratiometric measurements, the ratio of the signal at two
wavelengths, provide a measure that greatly reduces unwanted artifacts. These
artifacts may result from a variable number of cells in an assay, instrumental
fluctuation, photo-bleaching (light-induced degradation) of the probe molecules,
or the presence of quenching substances. Fluorescence resonance energy transfer
can occur when two fluorescent molecules interact as donor and acceptor over
very short distances. When the donor is illuminated with light at its wavelength
of excitation, instead of giving its usual color of emitted light, it transfers
energy to the acceptor that now emits at the acceptor's characteristic
wavelength. This transfer rapidly decreases if the two molecules move apart, for
example if a chemical linker is cleaved, and the fluorescence emission now
changes to the wavelength of the donor. The ratiometric signal change generated
can give a highly sensitive and reliable readout of molecular proximity.
Aurora's portfolio of fluorescent assay technologies is designed to enable
screening of compounds against nearly all major classes of human drug targets,
including receptors, ion channels and enzymes, in most therapeutic areas. The
following chart summarizes several of Aurora's key fluorescent assay
technologies, together with examples of the classes of targets and therapeutic
areas to which they may be applicable:
<TABLE>
<S> <C> <C>
-------------------------------------------------------------------------------------------------
ASSAY TECHNOLOGY TARGET CLASSES THERAPEUTIC AREA
-------------------------------------------------------------------------------------------------
BETA-LACTAMASE REPORTER GENE cell surface receptors, intra- most areas, including
SYSTEM cellular receptors, and intra- cardiovascular diseases,
(cell-based assays) cellular signaling proteins inflammation, cancer, central
nervous system diseases and
endocrine diseases
-------------------------------------------------------------------------------------------------
PROMISCUOUS G-PROTEINS G-protein coupled receptors most areas, including
(cell-based assays) cardiovascular diseases,
inflammation, cancer, central
nervous system diseases and
endocrine diseases
-------------------------------------------------------------------------------------------------
MEMBRANE VOLTAGE REPORTERS ion channels cardiac diseases, central
(cell-based assays) nervous system conditions and
gastro-intestinal diseases
-------------------------------------------------------------------------------------------------
GFP PROTEASE REPORTERS proteases AIDS, cardiovascular diseases
(biochemical and cell-based and degenerative brain diseases
assays)
-------------------------------------------------------------------------------------------------
GFP KINASE REPORTERS protein kinases cancer and autoimmune diseases
(biochemical and cell-based
assays)
-------------------------------------------------------------------------------------------------
</TABLE>
To date, only a limited number of targets have been incorporated into
assays utilizing the Company's fluorescent assay technologies. There can be no
assurance that the Company will be able to develop screening assays for each
target selected by its collaborators in a timely and cost-effective manner, or
if developed, that such assays will function as anticipated.
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<PAGE> 32
Beta-lactamase Reporter Gene System
Reporter genes can be genetically engineered into cells to monitor the
activation of a particular signaling pathway that alters the expression (the
production of the protein coded by that gene) of the reporter gene. Reporter
genes are chosen to code for proteins that can be readily measured under
particular experimental conditions. Most reporter genes typically encode enzymes
that can act on reporter substrates to give some form of optical signal, such as
a colored product, or an enzyme-induced discharge of light. Reporter genes are
now used by many pharmaceutical and biotechnology companies to facilitate drug
discovery.
Over recent years, it has been discovered that many natural ligands (such
as hormones, growth factors and neurotransmitters) that act via receptors on the
surface membrane of cells can increase, or sometimes decrease, the expression of
particular genes. Thus, it is now possible to genetically engineer cell lines in
which a wide range of receptor targets are functionally linked to an
intracellular reporter gene. Such cells can then be used to screen for agonists
and antagonists, compounds that, respectively, activate or inhibit the receptor.
The Company utilizes an engineered bacterial enzyme, b-lactamase, as a
reporter gene in mammalian cells. The Company believes that its b-lactamase
reporter system is an important advance in reporter gene technology that can be
used to design drug screens for a number of major classes of drug targets
including growth factors, cytokine or G-protein coupled receptors, transcription
factors and signal transduction pathways. Functional cell-based assays have a
number of advantages over the commonly used binding assays that detect
interaction of test compounds with targets isolated from their natural cellular
environment. The Company's b-lactamase reporter system allows drug screens to be
constructed in the more physiological environment of mammalian cells, does not
require the use of radioactivity and can readily distinguish between agonists
and antagonists. In addition, the b-lactamase reporter system can facilitate the
search for compounds acting on newly discovered target receptors where no
natural ligands have been identified, also known as orphan receptors. Certain
aspects of the b-lactamase reporter system were exclusively licensed from the
Regents of the University of California.
The Company's b-lactamase reporter system was originally designed to
measure gene expression, including measurement of genes of great interest that
may be expressed only at very low levels, in single living cells and in real
time. These stringent criteria are critical for both rapid assay development and
ultra-high throughput miniaturized drug screens and call for the following
features:
- a reporter enzyme not naturally present in mammalian cells that can be
expressed in those cells with high efficiency, and with well researched
biochemical properties;
- the substrate that actually reports the enzyme activity should provide
extreme sensitivity and precision, coupled with advanced fluorescence
properties providing a ratiometric readout; and
- the substrate must be non-fluorescent when first added to the cells, be
able to freely enter living cells and then be trapped inside a cell with
a distinct fluorescence, and expression of the reporter must then change
the substrate's fluorescent properties.
The Company believes that these features have been demonstrated in its
proprietary forms of b-lactamase reporter gene and the proprietary substrate,
CCF2-AM. This reporter system signals activation by a green to blue ratio change
that can be readily measured in single cells. The Company has now linked the
b-lactamase reporter system to cell surface receptors in assays suitable for
high throughput screening.
The Company's b-lactamase reporter system has the potential to greatly
reduce both the time and cost of developing cell-based screens. This feature
derives from the ability to measure activation responses in single living cells.
Even with modern techniques for making genetically engineered
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<PAGE> 33
cells, cell line development is an unpredictable process. Making cell lines for
reporter gene assays with current methods usually takes many months and involves
testing hundreds or even thousands of individual cell "clones" to generate a
usable screening assay. In contrast, the b-lactamase reporter system employs the
power of fluorescence-activated cell sorting, which can rapidly isolate the
living cells in which the reporter gene is connected to the right signaling
elements. Thus, with the Company's b-lactamase reporter system, incorporation of
a target into a cell-based assay can be reduced to weeks instead of months.
Promiscuous G-proteins
Cell surface receptors are important targets because they transfer
information from the surface to the inside of the cell. One major class of cell
surface receptors is termed G-protein coupled receptors because G-proteins,
attached to the inner face of the cell membrane, transmit the information from
these receptors into the cell interior. These receptors are the targets of
numerous valuable medicines such as Zantac and Inderal, and many are the targets
of current drug discovery programs. It is believed that there are over 1,000
G-protein coupled receptors. Many new members of this class of receptor have
been cloned in recent years. However, for many of these receptors, the natural
activator and the biological function are not known. These are the so-called
orphan receptors, which could prove to be important targets.
Normally each receptor must couple to a specific type of G-protein to have
a biological effect. In order to engineer a cell-based assay for a G-protein
coupled receptor, it is necessary for that receptor to couple via its specific
sub-type of G-protein to a signaling pathway that provides a robust signal for
screening. For example, activation of many G-protein coupled receptors can be
measured with the b-lactamase reporter system. However, for many G-protein
coupled receptors, it is not yet known with which G-protein they communicate.
Even when this is known, many G-proteins produce signals that are difficult to
incorporate into assays in current practice. The Company has an exclusive
license from the California Institute of Technology to the use of novel
"promiscuous" G-proteins, which are "universal adapters" that couple to a wide
range of receptors of this family of targets to a signaling pathway that is well
suited to certain of the Company's fluorescent assays. Thus, the Company
believes that its proprietary promiscuous G-protein methods can be helpful in
developing screens containing G-protein coupled receptors previously difficult
to incorporate into mammalian cell-based assays. The promiscuous G-proteins may
also be useful in constructing screens for orphan receptors that can be used to
search for compounds that activate such receptors as tools to help analyze the
function of these newly discovered genes. To date, the Company has limited
experience developing G-protein coupled receptor assays based on its proprietary
promiscuous G-protein methods.
Membrane Voltage Reporters
Membrane voltage, a fundamental property of cells, is controlled by
membrane proteins. Unregulated membrane voltage can cause serious medical
conditions. Thus membrane proteins, particularly ion channels, help regulate
membrane voltage and can be targets for drug discovery in major disease areas
such as neurology and cardiology. Important medicines acting on ion channels
include certain anti-epileptic and anti-arrhythmic medicines. However, screening
in this area is typically limited to testing compounds with an electrical
measuring apparatus, which requires skilled scientists and has a low throughput
of only tens of compounds per day. There has been some success in adapting an
existing type of fluorescent probe of membrane voltage for semi-automated
screening. The Company believes that this approach is likely to have too slow of
a response to report on many relevant ion channel targets, and can be highly
susceptible to severe artifacts which limit assay performance.
Aurora's proprietary membrane voltage reporters incorporate fluorescence
resonance energy transfer and ratiometric readout to permit more reliable
detection of changes in membrane voltage. With Aurora's approach, two different
fluorescent probes are confined to the surface membrane of the cells in the
assay. When the membrane voltage changes due to cell stimulation, the two probes
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<PAGE> 34
move further apart, or closer together, depending on whether the stimulation
increases or decreases the voltage. Thus the degree of fluorescence energy
transfer between the probes varies and a ratiometric readout may be obtained.
These key features and other aspects of the Company's membrane voltage reporters
should provide faster responses, which should be less susceptible to the
artifacts that can defeat the older methods. The Company believes that assays
incorporating its membrane voltage reporters will be adaptable for sub-types of
ion channels, several of which are currently the targets of screening programs
in pharmaceutical company research departments and in certain specialized
biotechnology companies. The Company is currently developing a screen for an ion
channel subtype for one of its corporate collaborators.
Proprietary Variants of Green Fluorescent Protein
Green Fluorescent Protein ("GFP") is a naturally fluorescent protein
discovered in light-producing jellyfish. The fluorescence of GFP is an intrinsic
property of the protein and, therefore, the protein requires no additional
chemicals to make it fluoresce. This feature of GFP allows it to be expressed
within genetically engineered mammalian cells and to provide an intracellular
reporter with its own intrinsic fluorescence. Using various techniques of
protein engineering, Aurora has developed several mutants, or variants, of the
naturally occurring type of GFP, which are readily expressed in mammalian cells
and provide much brighter fluorescence than that of the naturally occurring GFP
protein. The Company has also engineered variants that have significantly
different excitation and emission wavelengths and hence they fluoresce with
different colors. This provides the basis for GFP-based reporters that use
fluorescence resonance energy transfer to give ratiometric signals. At present,
the Company utilizes three main proprietary GFP variants: blue, green and
yellow. The Company believes that the main application for GFP in drug discovery
requires the further engineering of GFP variants to produce reporters of
important biologic modifications to proteins, such as protein cleavage by
proteases and protein phosphorylation by protein kinases. Accordingly, the
Company is developing GFP protease assays and GFP kinase assays as summarized
below. Certain aspects of Aurora's technology related to GFP reporters are
exclusively licensed from the Regents of the University of California and from
the University of Oregon.
GFP Protease Reporters. Proteases are enzymes that break proteins into
smaller pieces, sometimes to create a functional product and sometimes to
degrade the protein. A number of diseases involve proteases, such as infectious
diseases and cardiovascular disorders. For example, several HIV medicines target
HIV protease. Aurora's proprietary protease reporters are designed to detect
protease activity in cell-based or biochemical assays. Aurora's protease
substrates change their color of fluorescence when they are cleaved by a
protease. Such changes can be detected with current high throughput screening
systems. While there are currently several approaches to developing screens for
proteases, these are nearly all biochemical. However, because some proteases
operate in the interior of the cell, the ability to screen for protease
inhibitors in a cell-based assay could be an important advance. To date, in
addition to research into this class of reporters, the Company has made
prototype biochemical assays for two different proteases.
GFP Kinase Reporters. Protein kinases are a family of enzymes that can add
phosphate groups to proteins and can thereby modulate the protein's biological
function. Aurora's ultra-bright variants of GFP may be engineered to provide
fluorescent assays for protein kinase activity. A number of companies have
targeted protein kinases to discover therapeutics to treat a wide range of
diseases, including cancer and autoimmune disease. These companies typically use
kinase screens involving biochemical assays that often require washing steps or
radioactivity. These types of assays can be difficult to adapt to high
throughput screening and may be less predictive than cell-based assays, because
kinases are often regulated by intra-cellular modulators, which are missing in a
biochemical assay. Aurora's fluorescent kinase reporters are designed to detect
kinase activity in cell-based or biochemical assays. These reporters use novel
fluorescent substrates that are designed to measure kinase activity through
changes in the fluorescence readout, without washing steps or radioactivity. To
date, Aurora has developed a prototype biochemical kinase assay, is researching
the incorpora-
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<PAGE> 35
tion of this reporter into cell-based assays and is developing reporters for
other types of protein kinases.
AURORA'S ULTRA-HIGH THROUGHPUT SCREENING SYSTEM
Over the last five years, many of the major pharmaceutical companies and
some biotechnology companies have assembled high throughput screening systems
that incorporate varying degrees of robotics and automation to facilitate their
drug discovery efforts. These current systems, however, are unable to
accommodate miniaturized assays that are critical for screening at increasing
rates against the large number of new targets identified through genomics and
the growing libraries of test compounds being generated by combinatorial
chemistry. The Company believes that because most current systems have been
developed without an adequately integrated design concept, it can be challenging
to improve performance at certain rate-limiting steps without creating almost
equally limiting bottlenecks elsewhere in the process. In addition, the Company
believes that many of these systems are designed to screen only one class of
target or one type of assay.
To overcome limitations of present high throughput screening and to exploit
the power of its fluorescent assay technologies, Aurora is developing an
ultra-high throughput screening system over the next three to four years. Using
a fully integrated approach, the Company has combined a wide array of expertise
and technologies to develop its UHTS system. The Company is combining key
internally developed advances with the technologies accessed through its
strategic technology alliances, such as those with Packard and Carl Creative.
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<PAGE> 36
The following diagram summarizes the currently planned features of the UHTS
system:
[CHART]
35
<PAGE> 37
Automated Storage and Retrieval System
The UHTS system's automated storage and retrieval system is designed to
house over 1,000,000 compounds in solution for immediate access. The robotic
systems for storage and retrieval of compounds are being adapted from other
industrial settings where automated, rapid access to very large stores of small
items have been reliably deployed. Aurora is customizing the system for ultra-
high throughput screening. This approach exemplifies the Company's strategy of
bringing to the drug discovery process technological advances that have already
been deployed successfully in other industrial processes, while adding Aurora's
own proprietary innovations to adapt these advanced technologies to the UHTS
system.
The system is designed to allow ready replenishment of the compound store
from libraries in the master store. The robot that operates between the racks of
compound storage plates is designed to deliver (and once sampled, return to the
store for further use) over 100,000 selected compounds per day for primary
screening and over 2,000 hits for re-test and potency determination. This
capability should relieve a significant bottleneck in current screening
operations which have largely failed to automate these steps. The ability to
deliver selected compounds to the screen at ultra-high rates under computer
control is a key advance expected to be offered by the Aurora platform. The
automated storage and retrieval system is also being designed to facilitate high
throughput screening in conventional 96-well plates. The Company's automated
storage and retrieval system is expected to be available in 1998.
Microfluidics: Compound and Assay Component Dispensing
Current technologies for dispensing small volumes of liquid cannot meet the
requirements for screening in NanoPlates. The Company, together with Packard, is
developing microfluidic technologies to accurately and rapidly transfer
microscopic volumes of the compounds into the miniature assay wells of the
NanoPlates at rates of up to 10,000 wells per hour. While current screening
systems can dispense volumes down to a microliter (one millionth of a liter),
Aurora is developing miniaturized screening dispensers capable of accurately
dispensing sub-nanoliter volumes (less than one billionth of a liter) required
for the UHTS system. These sample dispensing devices are designed to remove
small amounts of the compounds from the storage plates and dispense at high
speed precise sub-nanoliter volumes into the appropriate wells of the
NanoPlates. The Company intends to incorporate these devices into proprietary
robotic platforms that are being co-developed with Carl Creative. These
platforms are designed to enable the precise location of the various components
in a manner superior to available compound dispensing technology. To date, the
Company has used prototype nanoliter dispensing devices to perform test assays
in prototype NanoPlates. The Company believes that its microfluidic systems
suitable for ultra-high throughput screening will be operational in 1999.
NanoPlates for Miniaturized Screening Assays
Another key component of Aurora's UHTS system is the NanoPlate, which has
3,456 miniaturized wells in which fluorescent assay screens may be performed.
The Company, in collaboration with Packard Instrument Company and specialized
manufacturers, has developed prototype proprietary NanoPlates. The diagram below
compares the new design with a conventional 96-well plate currently used in
almost all high throughput screening. A key feature is the small assay volume
(approximately 100 times smaller than conventional screening assays), which is
critical for reducing cost per test and conserving compounds made by
combinatorial methods that produce only very small amounts of each test
compound. In addition, the Company is developing technologies to reduce
evaporation that might occur in such small assay volumes. The Company is
developing its NanoPlates to be compatible with most of Aurora's fluorescent
assay technologies. Certain cell-based
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and biochemical assays, based on the Company's fluorescent reporters, have
already been shown to work in a prototype NanoPlate.
[ASSAY PLATES GRAPHIC]
Fluorescence Detector for NanoPlates
There are a number of fluorescence plate readers presently available which
enable the use of Aurora's proprietary fluorescent assays for high throughput
screening in 96-well plates. However, none of these provide the necessary
sensitivity and precision to enable ultra-high throughput miniaturized screens.
Aurora is collaborating with Packard to develop highly sensitive fluorescence
detectors capable of measuring miniaturized fluorescent assays in NanoPlates.
The detector is designed to record and process, in real time, data from more
than 100,000 assays in 24 hours. Aurora's detector is designed to measure the
signals generated from the various fluorescent assays over the range of
different wavelengths that the Company's various reporters require and to
rapidly acquire ratiometric data. The Company believes that the resulting
quality of the fluorescent assays should minimize the number of replicates
required compared to traditional screening, thereby increasing throughput and
decreasing costs. Currently the Company is finalizing the design of its detector
and believes that detectors operational with a NanoPlate can be developed within
a two-year time frame.
Informatics and System Integration
Successful overall integration of the UHTS system will require a strategy
for user-friendly computer control. The Company will be required to link the
operation of the automated storage and retrieval system to existing chemistry
information databases and master compound store inventories in the discovery
operations of its syndicate members. The integration of the entire system will
need to ensure that the large amount of screening data from the UHTS system is
efficiently captured, processed and deposited in a centralized database. The
Company plans to integrate advanced software tools and systems from leading
providers. While the basic building blocks are being
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<PAGE> 39
acquired from leading suppliers, the supervisory control systems, the subsystem
controllers for the instruments, the data analysis tools and overall system
architecture and database structure for the UHTS system are being developed by
the Company's in-house informatics team.
The Company's UHTS system is not expected to be fully integrated and
operational for at least three to four years. The Company's UHTS system will
require significant additional investment and research and development prior to
commencement of full-scale commercial operation, including integration of
complex instrumentation and software and testing to validate performance and
cost effectiveness, and is subject to substantial risks. Much of the
instrumentation and software that will comprise the Company's UHTS system are
not now and have not previously been used in commercial applications. Many of
these technologies have not been developed or validated at levels necessary to
screen miniaturized assays, and there can be no assurance that UHTS technologies
will achieve expected performance levels at these scales. The successful
implementation and operation of the Company's UHTS system will be a complex
process requiring integration and coordination of a number of factors, including
integration of and successful interfacing among complex advanced robotics,
microfluidics, automated storage and retrieval systems, fluorescence detector
technologies and software and information systems.
CORPORATE COLLABORATIONS
Aurora has entered into corporate collaborations with a number of companies
relating to screen development, functional genomics, screening services, access
to compound libraries and the co-development with its syndicate members of the
Company's UHTS system. The Company's significant collaborations and their major
features are summarized below:
<TABLE>
<S> <C>
----------------------------------------------------------------------------------------
BRISTOL-MYERS SQUIBB Member of UHTS system syndicate
Screen development
License to fluorescent assay technologies
----------------------------------------------------------------------------------------
ELI LILLY AND COMPANY Member of UHTS system syndicate
Screen development
License to fluorescent assay technologies
----------------------------------------------------------------------------------------
ROCHE BIOSCIENCE Screen development
Specialized instrumentation
----------------------------------------------------------------------------------------
SEQUANA THERAPEUTICS Screen development
Functional genomics
Screening services
----------------------------------------------------------------------------------------
ALLELIX BIOPHARMACEUTICALS Screen development
Screening services
----------------------------------------------------------------------------------------
ARQULE Screening of combinatorial chemistry libraries
----------------------------------------------------------------------------------------
ALANEX CORPORATION Screening of combinatorial chemistry libraries
----------------------------------------------------------------------------------------
</TABLE>
Bristol-Myers Squibb. In November 1996, the Company and Bristol-Myers
Squibb Pharmaceutical Research Institute entered into a Collaborative Research
and License Agreement (the "BMS Agreement") regarding the development of the
Company's UHTS system and the installation of a UHTS system at BMS. Under the
terms of the BMS Agreement, the Company is required to develop and separately
install three components to be integrated into one complete UHTS system. In
return, BMS is obligated to make certain payments to the Company in the form of
non-refundable up-front fees, installation payments and ongoing research and
co-development funding. The Company is obligated to provide service and support
for the UHTS system installed at BMS for a limited period of time.
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<PAGE> 40
The Company and BMS will also co-develop high throughput screening assays
for use by BMS. In connection with such screen development, BMS is required to
pay Aurora certain fees. Certain target screens developed by the Company for BMS
will be exclusive for a limited period of time. In exchange for certain payments
to Aurora, BMS will also have the right to use the Company's fluorescent assay
technologies for internal research and drug development, including the
development of screening assays. BMS will also make certain milestone and
royalty payments to Aurora if BMS develops and commercializes any compound
identified using a screen based on Aurora's fluorescent assay technologies.
Under the terms of the BMS Agreement, subject to certain conditions, the
UHTS syndicate is restricted to six members for a limited period. BMS may
withdraw from the development of the UHTS system at any time without cause,
provided that certain withdrawal payments have been made. BMS may also withdraw
from the development of the UHTS system for "good cause," as defined in the
agreement, without obligation to make further payments relating to development
of the UHTS system. Each party also has the right to terminate the agreement
upon the material breach by the other party of its obligations under the
agreement. The BMS Agreement also provides for penalties payable by the Company
if it fails to deliver the completed UHTS system by a specified time.
Eli Lilly and Company. In December 1996, the Company and Lilly entered into
a Collaborative Research and License Agreement (the "Lilly Agreement") regarding
the development of the Company's UHTS system and the installation of a UHTS
system at Lilly. Under the terms of the Lilly Agreement, the Company is required
to develop and separately install three components to be integrated into one
complete UHTS system. In return, Lilly is obligated to make certain payments to
the Company in the form of non-refundable up-front fees, delivery payments and
ongoing co-development funding. The Company is obligated to provide service and
support for the UHTS system installed at Lilly for a limited period.
The Company and Lilly will also co-develop high throughput screening assays
for use by Lilly. In connection with such development, Lilly is required to pay
Aurora certain fees. In exchange for certain payments to Aurora, Lilly will also
have the right to use the Company's fluorescent assay technologies for internal
research and drug development, including the development of screening assays.
Lilly will also make certain milestone and royalty payments to Aurora if Lilly
develops and commercializes any compound identified using a screen based on
Aurora's fluorescent assay technologies, subject to certain limitations on the
royalties payable to Aurora.
Under the terms of the Lilly Agreement, subject to certain conditions, the
UHTS syndicate is restricted to six members for a limited period of time. Lilly
may terminate the agreement at any time without cause upon 45 days written
notice to Aurora, provided that certain withdrawal payments are made. Each party
has the right to terminate the agreement upon the material breach by the other
party of its obligations under the agreement. The Lilly Agreement also provides
for penalties payable by the Company if it fails to deliver the completed UHTS
system by a specified time.
Roche Bioscience. In December 1996, the Company and Roche entered into a
Collaborative Research and License Agreement ("Roche Agreement") regarding the
development and delivery of a certain screening instrument by Aurora. Roche is
obligated to make certain payments to the Company in the form of non-refundable
up-front fees and delivery payments. For a limited period of time specified in
the agreement, the Company is obligated to provide service and support for any
instrument delivered to Roche. The Company and Roche will also co-develop a
screening assay for use with a target identified in the Roche Agreement. In
connection with such development, Roche is obligated to make certain payments to
the Company in the form of non-refundable up-front fees and ongoing research and
co-development funding. Aurora is prohibited, for a period of time specified in
the agreement, from entering into any third-party collaboration with respect to
the specific target set forth in the Roche Agreement. Roche may elect to
terminate the agreement at any time without cause upon 30 days written notice to
Aurora, provided that certain payments are made.
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Sequana Therapeutics, Inc. In April 1996, the Company and Sequana entered
into a Research Agreement (the "Sequana Agreement") regarding the screening of
certain targets to be selected by Sequana. Under the terms of the Sequana
Agreement, Sequana may require the Company to provide functional analysis, assay
development and screening for such targets, and Sequana would then be obligated
to make certain payments to the Company in the form of non-refundable up-front
fees, delivery payments and ongoing research funding. Sequana will also be
obligated to make certain milestone and royalty payments to the Company if any
pharmaceutical product is developed and commercialized as a result of work
performed by the Company pursuant to the agreement.
During the term of the agreement, and subject to certain provisions, Aurora
is prohibited from performing services for third parties related to a limited
number of targets selected by Sequana and discovered as a result of positional
cloning or statistical genetics. Unless terminated earlier in accordance with
its provisions, the Sequana Agreement will terminate on June 17, 1999, subject
to Sequana's right to extend such term for up to two one-year periods. Each
party has the right to terminate the agreement in the event of a material breach
of the agreement by the other party by giving the other party notice of its
intention to terminate if within 90 days of such notice such party does not cure
the breach. In connection with the execution of the Sequana Agreement, Sequana
made a $1.5 million equity investment in Aurora. See "Certain Transactions."
Allelix Biopharmaceuticals, Inc. In February 1997, the Company and Allelix
entered into a Collaboration Agreement (the "Allelix Agreement") regarding the
development over a three-year period of screening assays for use with targets
identified by Allelix and agreed to by Aurora. Under the terms of the Allelix
Agreement, the Company is required to develop such screening assays and to
perform screening services, and Allelix is obligated to make certain payments to
the Company in the form of up-front fees, development payments and fees for
screening services. Allelix is also required to make certain milestone and
royalty payments to Aurora in the event of development and commercialization of
a compound identified using a screen based on Aurora's fluorescent assay
technologies.
ArQule, Inc. In September 1996, the Company and ArQule entered into a
Material Transfer and Screening Agreement (the "ArQule Agreement"), which was
amended in March 1997. The ArQule Agreement, as amended, provides for the
enrollment of the Company in ArQule's Mapping Array Program and entitles the
Company to receive a sample of each Mapping Array compound set that ArQule
develops and ships ("ArQule Compounds"). ArQule's Mapping Array Program consists
of up to 100,000 individual compounds per year. Should the Company detect
activity in one or more of the ArQule Compounds, the Company and ArQule under
certain conditions may enter into negotiations to establish a research
collaboration agreement. Unless terminated earlier in accordance with its
provisions, the ArQule Agreement is in effect for a period of six months
following the effective date of the agreement. The ArQule Agreement
automatically extends for successive additional six-month periods unless the
Company or ArQule provides 30 days written notice of termination prior to the
expiration of any such period.
Alanex Corporation. In November 1996, the Company and Alanex entered into a
Material Transfer and Screening Agreement (the "Alanex Agreement") regarding the
screening of the Alanex compound library consisting of 150,000 compounds
("Alanex Compounds"). Should the Company detect activity in one or more of the
Alanex Compounds during the term of the Alanex Agreement, the Company and Alanex
under certain conditions may enter into negotiations to establish a research
collaboration agreement. Unless terminated earlier in accordance with its
provisions, the Alanex Agreement shall be in effect for a period of six months
following the effective date of the agreement. Thereafter, the Alanex Agreement
will automatically extend for successive additional six-month periods unless the
Company or Alanex provides 30 days written notice prior to the expiration of any
such period.
To date, all revenue received by the Company has been from its
collaborations and technology alliances. The Company expects that substantially
all revenue for the foreseeable future will come
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from collaborators. Furthermore, the Company's ability to achieve profitability
will be dependent upon the ability of the Company to enter into additional
corporate collaborations. Because pharmaceutical and biotechnology companies
engaged in drug discovery activities have historically conducted drug discovery
and screening activities through their own internal research departments, these
companies must be convinced that the Company's UHTS technologies justify
entering into collaborative agreements with the Company. There can be no
assurance that the Company will be able to negotiate additional collaborative
agreements in the future on acceptable terms, if at all, that such current or
future collaborative agreements will be successful and provide the Company with
expected benefits, or that current or future collaborators will not pursue or
develop alternative technologies either on their own or in collaboration with
others, including the Company's competitors, as a means for identifying lead
compounds or targets. To the extent the Company chooses not to or is unable to
enter into such agreements, it will require substantially greater capital to
undertake the research, development and marketing of its systems, services and
technologies at its own expense. In the absence of such collaborative
agreements, the Company may be required to delay or curtail its research and
development activities to a significant extent.
In addition, 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 or that the Company will derive any
additional revenue from such agreements. Termination of the Company's existing
or future collaboration agreements, or the failure to enter into a sufficient
number of additional collaborative agreements on favorable terms, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
UHTS TECHNOLOGY ALLIANCES
Aurora has entered into strategic technology alliances to design, develop
and implement its UHTS system with leading companies in the areas of
instrumentation, storage and retrieval systems and microfluidics, including the
alliances with Packard, Carl Creative and Universal Technologies, Inc. ("UTI")
summarized below.
Packard Instrument Company. In April 1996, the Company entered into a
Collaboration and License Agreement with Packard (the "Packard Agreement")
regarding the joint development of microfluidic components, NanoPlates and
fluorescence detectors for use, among other things, in the Company's UHTS
system. Under the terms of the Packard Agreement, Packard is required to develop
and deliver such components, and Aurora is obligated to make certain payments to
Packard in the form of non-refundable up-front fees and delivery payments.
Aurora was granted, for a period of two to three years from Aurora's acceptance
of an operational component, an exclusive right to use, market, lease and sell,
for use in certain applications defined in the agreement, the components
developed under the agreement. Packard was granted a worldwide, exclusive
sublicense under the Company's license with the University of California Regents
to make, have made and sell certain fluorescent reagents covered by such license
to non-profit organizations for their internal, non-commercial research. In
connection with the execution of the Packard Agreement, Packard made a $1.0
million equity investment in Aurora. Packard is also providing the Company with
research funding for the development of certain instrumentation.
The Packard Agreement, unless terminated earlier in accordance with its
terms, has an initial term of ten years. If either party fails to satisfy
certain milestones applicable to it under the agreement, and the parties fail to
reach a mutually satisfactory resolution within 90 days after such failure, the
other party shall have the right to terminate the agreement, unless the party
who failed to satisfy such milestone used reasonable good faith efforts to
accomplish such milestone, in which case the other party shall only have the
right to modify the agreement as specified therein. Each party has the right to
terminate the agreement, upon 90 days written notice, for a material breach by
the other party of its obligations under the agreement which is not cured within
such 90-day period.
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Carl Creative Systems, Inc. In November 1996, the Company entered into a
Development Agreement with Carl Creative (the "CCS Agreement") regarding the
development and sale of, among other things, liquid handling components and
robotics for use with the Company's UHTS system. Under the terms of the CCS
Agreement, Carl Creative is required to develop and deliver such components, and
the Company is obligated to make certain development payments to Carl Creative
in accordance with the payment schedule set forth in the CCS Agreement. A
portion of such development payments will be credited towards any purchases by
Aurora of components or services from Carl Creative. During the term of the CCS
Agreement, provided certain price and supply criteria are satisfied, the Company
is obligated to utilize Carl Creative as the primary manufacturer of certain
components. The Company was granted, for a period of time specified in the
agreement, an exclusive right to such components. The CCS Agreement, unless
terminated earlier in accordance with its terms, has an initial term of two
years, which shall automatically renew for successive six-month periods unless
either party provides at least 30 days written notice of its intent to terminate
at the end of the then-current term. Each party has the right to terminate the
agreement if the other party breaches or defaults in the performance of any of
its material obligation under the agreement, and such breach or default
continues for 60 days after written notice thereof.
Universal Technology, Inc. In December 1996, the Company entered into a
Development Agreement with UTI (the "UTI Agreement") regarding the development
and sale of storage and retrieval systems for use with the Company's UHTS
system. Under the terms of the UTI Agreement, UTI is required to develop and
deliver a storage and retrieval system for use with the Company's UHTS system,
and Aurora is obligated to make certain payments to UTI. Aurora was granted, for
a period of time specified in the agreement, an exclusive right to make, use,
and sell certain UTI technology, including the storage and retrieval system
developed under the agreement. The UTI Agreement, unless terminated earlier in
accordance with its terms, has an initial term of two years, which shall
automatically renew for successive six-month periods unless either party
provides at least 30 days written notice of its intent to terminate at the end
of the then-current term. Each party has the right to terminate the agreement if
the other party breaches or defaults in the performance of any material
obligation under the agreement, and such breach or default continues for 60 days
after written notice thereof.
The Company relies on these companies, many of which are single-source
vendors, for the development, manufacture and supply of certain components of
the Company's UHTS system. Although the Company believes these technology
alliances should provide the Company with a competitive advantage, the Company's
competitive advantage could be substantially weakened or displaced by other
technologies that supplant those made available to the Company through its
alliances. To the extent possible and commercially reasonable, the Company has,
and will continue to seek, alternative sources for various components of its
UHTS system, and may also develop various components of its UHTS system
utilizing its internal engineering capabilities. Although the Company believes
that alternative sources for UHTS system components could be made available, any
interruption in the development, manufacture or supply of a sole-sourced
component could have a material adverse effect on the Company's ability to
develop its UHTS system until a new source of supply is qualified, could subject
the Company to penalties for delays in delivery of the UHTS system and, as a
result, could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance the
Company will be able to enter into additional technology alliances on
commercially reasonable terms, if at all, or that the Company's current or
future allies or suppliers will meet the Company's requirements for quality,
quantity or timeliness.
PATENTS AND PROPRIETARY RIGHTS
The Company's patent portfolio includes 29 patent applications filed in the
United States and foreign patent jurisdictions. Two of the United States
applications relating to the Company's fluorescent assay technology have
recently been allowed. The Company is either the assignee or
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exclusive licensee of these patent applications. Certain aspects of the
Company's technology related to GFP reporters, b-lactamase based reporters,
protease reporters, kinase reporters, and membrane voltage reporters are
exclusively licensed from The Regents of the University of California ("The
Regents"). Pursuant to the terms of the Exclusive License Agreement between the
Company and The Regents, the Company is obligated to pay expenses associated
with patent prosecution and maintenance, certain license issue fees and
royalties to the Regents. Certain aspects of the Company's technology related to
GFP reporters are exclusively licensed from the University of Oregon ("UO").
Pursuant to the terms of the License Agreement between the Company and UO, the
Company is obligated to pay to UO expenses associated with patent prosecution
and maintenance, certain annual payments and, upon the issuance of a patent
related to the subject technology, to issue shares of the Company's Common Stock
to UO. Certain aspects of the Company's technology related to G-protein coupled
receptor reporters are exclusively licensed from the California Institute of
Technology ("Cal Tech"). In connection with the execution of the License
Agreement between the Company and Cal Tech, the Company became obligated to pay
certain expenses associated with patent prosecution and maintenance, and the
Company issued shares of its Common Stock to Cal Tech. Additionally, the Company
has obtained a non-exclusive license from SIBIA Neurosciences, Inc. ("SIBIA"),
with limited rights to sublicense, under patent rights covering certain
transcription-based assay technology (which relates to certain uses of reporter
genes) for screening. Pursuant to the terms of the Non-Exclusive Cross-License
Agreement between the Company and SIBIA, the Company granted SIBIA a
non-exclusive license to certain of Aurora's technologies, and the Company
issued to SIBIA shares of the Company's Common Stock. The Company and SIBIA are
also obligated to pay each other certain royalties. The Company is dependent on
the rights licensed from such parties. Any challenge to, invalidation or loss of
such rights could have a material adverse effect on the business, financial
condition and results of operation of the Company.
The Company's success will depend in part on its ability to obtain patent
protection for its systems, services and technologies, and to operate without
infringing the proprietary rights of third parties. The Company has had no
patents issued to date. The Company is dependent, in part, on the patent rights
licensed from third parties with respect to its fluorescent assay technologies.
There can be no assurance that patent applications filed by the Company or its
licensors will result in patents being issued, that the claims of such patents
will offer significant protection of the Company's technology, or that any
patents issued to, or licensed by, the Company will not be challenged, narrowed,
invalidated, or circumvented. The Company may also be subject to legal
proceedings that result in the revocation of patent rights previously owned by
or licensed to the Company, as a result of which the Company may be required to
obtain licenses from others to continue to develop, test or commercialize its
systems, services or technologies. There can be no assurance that the Company
will be able to obtain such licenses on acceptable terms, if at all.
The drug discovery industry, including screening technology companies, has
a history of patent litigation and will likely continue to have patent
litigation suits concerning drug discovery technologies. The patent positions of
pharmaceutical, biotechnology and drug discovery companies, including the
Company, are generally uncertain and involve complex legal and factual
questions. A number of patents have issued and may issue on certain targets or
their use in screening assays that could prevent the Company and its
collaborators from developing screens using such targets, or relate to certain
other aspects of technology utilized or expected to be utilized by the Company.
The Company has received invitations from third parties to license patents owned
or controlled by third parties. The Company evaluates these requests and intends
to obtain licenses that are compatible with its business objectives. There can
be no assurance, however, that the Company will be able to obtain any licenses
on acceptable terms, if at all. The Company's inability to obtain or maintain
patent protection or necessary licenses could have a material adverse effect on
the business, financial condition and results of operations of the Company.
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The Company is aware of a third party Patent Cooperation Treaty application
that claims certain uses of green fluorescent protein including its use in
protein kinase assays. If a patent were to issue from such application that
relates to the Company's GFP kinase reporters, the Company believes that such
patent would be unlikely to require the Company to obtain a license. However,
the Company may need to obtain such a license and there can be no assurance that
any such license would be available on commercially reasonable terms, if at all.
The Company is also aware of third party patents and published patent
applications that contain issued or issuable claims that may cover certain
aspects of the Company's or its collaborators' technologies, including certain
types of fluorescent assay methods, certain assays for ligands to certain
classes of targets such as certain cell surface and intracellular receptors, and
certain transcription based assays for chemicals that modulate transcription of
a gene encoding a protein related to disease. There can be no assurance that the
Company would not be required to take a license under any such patents to
practice certain aspects of its fluorescent assay technologies or that such
license would be available on commercially reasonable terms, if at all. Any
action against the Company or its collaborators claiming damages and seeking to
enjoin commercial activities relating to the affected technologies could, in
addition to subjecting the Company to potential liability for damages, require
the Company or its collaborators to obtain a license in order to continue to
develop, manufacture or market the affected technologies. The Company could
incur substantial costs in defending patent infringement claims, obtaining
patent licenses, engaging in interference and opposition proceedings or other
challenges to its patent rights or intellectual property rights made by third
parties, or in bringing such proceedings or enforcing any patent rights against
third parties. The Company's inability to obtain necessary licenses or its
involvement in proceedings concerning patent rights could have a material
adverse effect on the business, financial condition and results of operations of
the Company.
In addition to patent protection, Aurora also relies on copyright
protection, trade secrets, know-how, continuing technological innovation and
licensing opportunities. In an effort to maintain the confidentiality and
ownership of trade secrets and proprietary information, the Company requires
employees, consultants and certain collaborators to execute confidentiality and
invention assignment agreements upon commencement of a relationship with the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets or other confidential
information in the event of unauthorized use or disclosure of such information
or that adequate remedies would exist in the event of such unauthorized use or
disclosure. The loss or exposure of trade secrets possessed by the Company could
adversely affect its business. Like many high technology companies, the Company
may from time to time hire scientific personnel formerly employed by other
companies involved in one or more areas similar to the activities conducted by
the Company. Although the Company requires its employees to maintain the
confidentiality of all confidential information of previous employers, there can
be no assurance that the Company or these individuals will not be subject to
allegations of trade secret misappropriation or other similar claims as a result
of their prior affiliations.
COMPETITION
Competition among pharmaceutical and biotechnology companies which attempt
to identify compounds for development is intense. Because the Company's UHTS
system is being designed to integrate a number of different technologies, the
Company competes in many areas, including assay development, high throughput
screening and functional genomics. In the pharmaceutical industry, the Company
competes with the research departments of pharmaceutical and biotechnology
companies and other commercial enterprises, as well as numerous academic and
research institutions. Pharmaceutical and biotechnology companies, academic
institutions, governmental agencies and other research organizations are
conducting research in various areas which constitute portions of the Company's
technology platform, either on their own or in collaboration with others. There
can be no assurance that pharmaceutical and biotechnology companies which
currently compete with the Company in specific areas will not merge or enter
into joint ventures or other alliances with one or more other such companies and
become substantial multi-point competitors or that the
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Company's collaborators will not assemble their own ultra-high throughput
screening systems by purchasing components from competitors. Genomics and
combinatorial chemistry companies may also expand their business to include
compound screening or screen development, either alone or pursuant to alliances
with others. The Company anticipates that it will face increased competition in
the future as new companies enter the market and advanced technologies,
including more sophisticated information technologies, become available. The
Company's technological approaches, in particular its UHTS system, may be
rendered obsolete or uneconomical by advances in existing technological
approaches or the development of different approaches by one or more of the
Company's current or future competitors. Many of these competitors have greater
financial and personnel resources, and more experience in research and
development, than the Company. Historically, pharmaceutical and biotechnology
companies have maintained close control over their research activities,
including the synthesis, screening and optimization of chemical compounds. Many
of these companies, which represent the greatest potential market for the
Company's systems, services and technologies, have developed or are developing
internal programs and other methodologies to improve productivity, including
major investments in robotics technology to permit the automated screening of
compounds.
GOVERNMENT REGULATION
Regulation by the U.S. Food and Drug Administration ("FDA") and other
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 collaborator. It is not currently
anticipated that the Company will develop its own drugs through clinical trials
and marketing. However, pharmaceutical products, if any, developed by the
Company's collaborators will require lengthy and costly pre-clinical and
clinical trials and regulatory approval by governmental agencies prior to
commercialization. The process of obtaining these approvals and the subsequent
compliance with appropriate federal, state and foreign statutes and regulations
are time consuming and require the expenditure of substantial resources. Delays
in obtaining regulatory approvals would adversely affect the marketing of any
drugs developed by the Company's collaborators, diminish any competitive
advantages that the Company's collaborators may attain and therefore adversely
affect the Company's ability to receive royalties or milestone payments. If the
product is classified as a new drug, a New Drug Application will be required to
be filed with, and product approval must be obtained from, the FDA before
commercial marketing of the drug. These 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.
The Company is subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of certain
materials and waste products used and produced by the Company. The risk of
accidental contamination or injury from these materials cannot be eliminated and
in the event of such an accident, the Company could be held liable for any
damages that result and any liability could exceed the resources of the Company
and, 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.
EMPLOYEES
As of March 31, 1997, the Company had a total of 54 employees, 20 of whom
hold M.D. or Ph.D. degrees and 10 of whom hold other advanced degrees. Of these,
39 were engaged in research, screen development, screening services and UHTS
system development. The remainder were engaged in legal, business development,
general administration and finance. The Company's future success depends in
significant part upon the continued service of its key scientific, technical and
senior management personnel and its continuing ability to attract and retain
highly qualified technical and managerial personnel. None of the Company's
employees is represented by a labor union or covered by a collective bargaining
agreement. The Company has not experienced any work stoppages and considers its
relations with its employees to be good.
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FACILITIES
The company's facilities are located in La Jolla, California. The Company
leases approximately 22,245 square feet of space used for laboratory and
administrative purposes. These facilities are leased through October 15, 1999.
The Company recently entered into an 11-year lease for approximately 55,000
square feet of laboratory and office space and plans to relocate its operations
to such facility in the fourth quarter of 1997. The Company believes that, upon
such relocation, the Company's facilities will be adequate for its current and
projected needs and that additional space at a nearby location will be available
as needed.
LEGAL PROCEEDINGS
Aurora is not a party to any legal proceedings.
SCIENTIFIC ADVISORS
The Company's scientific advisors, who have demonstrated expertise in
various fields, advise the Company from time to time concerning long-term
scientific planning, research and development. The scientific advisors also
evaluate the Company's research programs, recommend personnel to the Company,
and advise the Company on specific scientific and technical issues. The
scientific advisors are compensated by retainer and on a time and expenses basis
and have received shares of Common Stock of the Company. The Company has entered
into consulting agreements with a number of the scientific advisors.
None of the scientific advisors is employed by the Company, and they may
have other commitments to or consulting or advisory contracts with their
employers or other entities that may conflict or compete with their obligations
to the Company. Accordingly, such persons are expected to devote only a small
portion of their time to the Company. The Company's scientific advisors are:
Roger Y. Tsien, Ph.D. -- Investigator, Howard Hughes Medical Institute;
Professor, Department of Pharmacology, School of Medicine, University of
California, San Diego; Professor, Department of Chemistry and Biochemistry,
University of California, San Diego
Charles S. Zuker, Ph.D. -- Investigator, Howard Hughes Medical Institute;
Professor, Departments of Biology and Neurosciences, School of Medicine,
University of California, San Diego
Lubert Stryer, M.D. -- Winzer Professor in the School of Medicine and
Professor of Neurobiology, Stanford University
Michael Geoffrey Rosenfeld, M.D. -- Investigator, Howard Hughes Medical
Institute; Professor of Medicine, University of California, San Diego
Burton G. Christensen, Ph.D. -- former Senior Vice President for Chemistry,
Merck Sharp & Dohme
Tom Curran, Ph.D. -- Chairman, Department of Developmental Neurobiology, St.
Jude's Hospital Medical Center, Memphis; formerly Associate Director, Roche
Institute of Molecular Biology
Melvin I. Simon, Ph.D. -- Professor of Biological Sciences and Chairman of
the Biology Division, California Institute of Technology
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information regarding the Company's
directors, executive officers and key employees as of March 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Timothy J. Rink, M.D., Sc.D............... 50 Chairman of the Board, President and Chief
Executive Officer
J. Gordon Foulkes, Ph.D................... 43 Chief Technical Officer, Director
Paul A. Grayson........................... 32 Vice President, Corporate Development
Harry G. Stylli, Ph.D..................... 35 Vice President, Screen Technology
Frank F. Craig, Ph.D...................... 35 Senior Director, Screen Development
Deborah J. Tower.......................... 35 Senior Director, Finance and
Administration, Secretary and Treasurer
John D. Mendlein, Ph.D.................... 37 Senior Legal Counsel and Director,
Intellectual Property
James C. Blair, Ph.D. (1)................. 57 Director
Kevin J. Kinsella (1)..................... 51 Director, Co-founder
Hugh Y. Rienhoff, Jr., M.D.(1)(2)......... 44 Director
Lubert Stryer, M.D........................ 59 Director
Timothy J. Wollaeger (2).................. 53 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
All directors hold office until the next annual meeting of stockholders of
the Company and until their successors have been elected and qualified.
Directors do not receive any fees for services on the Board. Board members are
reimbursed for their expenses for each meeting attended. Officers serve at the
discretion of the Board of Directors. There are no family relationships between
any directors or executive officers of the Company.
Timothy J. Rink has served as Chairman of the Board, President and Chief
Executive Officer of the Company since February 1996. From 1990 through 1995,
Dr. Rink served as President and Chief Technical Officer of Amylin
Pharmaceuticals, Inc., a publicly held biopharmaceutical company. Dr. Rink was
Vice President, Research at SmithKline Beecham in the U.K. from 1984 to 1989,
and previously was Lecturer in Physiology at the University of Cambridge. Dr.
Rink currently serves on the Scientific Advisory Board of Amylin, and he is a
director of CoCensys, Inc. and NPS Pharmaceuticals, Inc., all publicly held
biopharmaceutical companies. Dr. Rink received his M.A., M.D. and Sc.D. in
Medical Sciences from the University of Cambridge, England.
J. Gordon Foulkes has been Chief Technical Officer and a director of the
Company since November 1996. From 1987 to 1996, Dr. Foulkes served in several
capacities at Oncogene Science, Inc., where he was a director and most recently
held the position of Chief Scientific Officer. Prior to joining Oncogene
Science, Dr. Foulkes led a research group at National Institute for Medical
Research in the U.K., and was previously a post-doctoral fellow in Dr. David
Baltimore's laboratory at the Massachusetts Institute of Technology. Dr. Foulkes
obtained his B.Sc. in Biochemistry at the University College, Cardiff, U.K. and
his Ph.D. in Biochemistry in Professor Philip Cohen's laboratory at the
University of Dundee, Scotland.
Paul A. Grayson joined the Company in April 1996 and currently serves as
Vice President, Corporate Development. From 1994 to 1996, Mr. Grayson served as
Director of Business Development for Advanced Tissue Sciences, Inc. From 1987 to
1994, Mr. Grayson held various research, marketing and business development
positions at Allergan Pharmaceuticals and Gensia Inc. Mr.
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Grayson received his B.S. in Biochemistry and Computer Science from the
University of California, Los Angeles, and his M.B.A. from the University of
California, Irvine.
Harry G. Stylli joined the Company in November 1995 and currently serves as
Vice President, Screen Technology. From 1987 to 1995, Dr. Stylli held several
positions at Glaxo Wellcome plc, where he was integrally involved in the
International Screening and Technology Program. Dr. Stylli obtained a Ph.D. in
Pharmaceutical Chemistry from Kings College London University, an M.B.A. from
Open University, Milton Keynes, U.K. and a B.Sc. in Biochemical Pharmacology,
with honors, from the University of East London.
Frank F. Craig joined the Company in November 1995 and currently serves as
Senior Director, Screen Development. From 1993 to 1995, Dr. Craig held several
positions in the Lead Discovery Division of Glaxo Wellcome plc. From 1989 to
1992 he worked as a Project Leader in the Life Sciences Division of Amersham
International plc. Dr. Craig received B.Sc. and Ph.D. degrees in Microbiology
from the University of Glasgow, U.K., and a Diploma in Business Studies and
Political Economy from the University of Westminster, U.K.
Deborah J. Tower joined the Company in May 1996 and currently serves as
Senior Director, Finance and Administration, Secretary and Treasurer. From 1994
to 1996, Ms. Tower served as Director of Finance and Accounting of Sequana
Therapeutics, Inc. From 1989 to 1993, she served as Controller of Vical Inc. Ms.
Tower received a B.S. in Accounting, with honors, from San Diego State
University and is a Certified Public Accountant.
John D. Mendlein has been Senior Legal Counsel and Director, Intellectual
Property since August 1996. From 1990 to 1996, Dr. Mendlein worked at Cooley
Godward LLP, Palo Alto, California, where he specialized in intellectual
property law. Dr. Mendlein received his Ph.D. in Physiology from the University
of California, Los Angeles, his J.D. from the University of California, Hastings
College of Law and his B.S. in Biology from the University of Miami, Florida.
James C. Blair has been a director of the Company since March 1996. Dr.
Blair has been a general partner of Domain Associates, a venture capital
investment firm, since 1985. Domain Associates manages Domain Partners III, L.P.
and DP III Associates, L.P. and is the U.S. venture capital advisor to
Biotechnology Investments Limited. From 1969 to 1985, Dr. Blair was an officer
of three investment banking and venture capital firms. Dr. Blair is a director
of Amylin Pharmaceuticals, Inc., CoCensys, Inc., Dura Pharmaceuticals, Inc.,
Gensia, Inc., Houghten Pharmaceuticals, Inc. and Vista Medical Technologies,
Inc. Dr. Blair received a B.S.E. from Princeton University and M.S.E. and Ph.D.
degrees in Electrical Engineering from the University of Pennsylvania.
Kevin J. Kinsella, a co-founder of the Company, has been a director of the
Company since its inception in May 1995. Mr. Kinsella was the founder of Sequana
Therapeutics, Inc. in February 1993, where he currently serves as President,
Chief Executive Officer and a director. He was the Managing General Partner of
Avalon Ventures, a venture capital firm. Avalon Ventures has financed over
thirty companies, many of which are in the biopharmaceutical field, including
Pharmacopeia, Inc., Athena Neurosciences Inc., ONYX Pharmaceuticals and Vertex
Pharmaceuticals Inc. He is also a director of ONYX Pharmaceuticals. He received
a B.S. from the Massachusetts Institute of Technology and an M.A. from the Johns
Hopkins School of Advanced International Studies.
Hugh Y. Rienhoff, Jr. has been a director of the Company since March 1996.
Dr. Rienhoff is a director of Abingworth Management Limited, a venture capital
investment firm. From 1992 to 1997, Dr. Rienhoff held various positions at New
Enterprise Associates Development Corporation, where he most recently served as
Partner. He is a director of Healtheon, Hexagen plc., Microcide Pharmaceuticals,
Inc., VacTex and Sensors for Medicine and Science. Dr. Rienhoff received an M.D.
degree from The John Hopkins University and a B.A. degree in English Literature
and Biology, with honors, from Williams College.
Lubert Stryer has been a director of the Company since March 1996, and
currently serves as a scientific advisor of the Company. He is a Winzer
Professor in the School of Medicine and Professor
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<PAGE> 50
of Neurobiology at Stanford University. He is a director of Affymetrix, Inc.
From 1989 to 1990, Dr. Stryer served as President and Director of Affymax
Research Institute. He is co-inventor of Affymetrix's light-directed synthesis
technology. Dr. Stryer has pioneered the development of novel fluorescence
detection techniques and holds ten patents involving fluorescence and
light-activated chemical syntheses. Dr. Stryer is the author of Biochemistry, a
major text used widely in colleges and universities around the world. Dr. Stryer
received the American Chemical Society Award in Biological Chemistry (the Eli
Lilly Award) and is a member of the National Academy of Sciences and received an
honorary Doctor of Science from The University of Chicago. Dr. Stryer received
his M.D. degree from Harvard University and his B.S. degree from the University
of Chicago.
Timothy J. Wollaeger has been a director of the Company since March 1996.
He has been the general partner of Kingsbury Associates and the general partner
of Kingsbury Capital Partners, L.P. and Kingsbury Capital Partners, L.P. II
venture capital investment partnerships since 1993. From 1990 to 1993, Mr.
Wollaeger served as Senior Vice President and was a director of Columbia
Hospital Corporation, a hospital management company now known as Columbia/HCA
Healthcare Corporation. From 1986 until 1993, he was a general partner of the
general partner of Biovest Associates, a venture capital investment firm. He is
a director of Amylin Pharmaceuticals, Inc., Chairman and a director of Biosite
Diagnostics, Inc. and a director of Phamis, Inc. He received an M.B.A. from
Stanford University and a B.A. in Economics from Yale University.
The Company and certain of its stockholders are party to a Voting Agreement
dated March 8, 1996 (the "Voting Agreement"). Pursuant to the terms of the
Voting Agreement, subject to certain conditions, each of Avalon Bioventures II,
L.P. ("Avalon"), Kingsbury Capital Partners, L.P. II ("Kingsbury"), Abingworth
Bioventures SICAV ("Abingworth"), New Enterprise Associates VI, L.P. ("NEA") and
Domain Partners III, L.P. ("Domain III") are entitled to designate a nominee for
election as one of the directors of the Company (collectively, the "Venture
Nominees"). Each party to the Voting Agreement has agreed to vote, at each
meeting (or action by written consent in lieu thereof) of stockholders of the
Company at or by which directors were to be elected, all or their respective
shares of the Company's capital stock to elect, as directors of the Company, (i)
the Venture Nominees, (ii) the Chief Executive Officer of the Company and (iii)
an individual designated jointly by Roger Y. Tsien and Charles S. Zuker. Venture
Nominees currently serving on the Board of Directors include Kevin J. Kinsella,
nominee of Avalon, Timothy J. Wollaeger, nominee of Kingsbury, Hugh Y. Rienhoff,
Jr., nominee of Abingworth, and James C. Blair, nominee of Domain III. Lubert
Stryer currently serves as the nominee of Roger Y. Tsien and Charles S. Zuker.
Timothy J. Rink, as Chief Executive Officer of the Company, was elected as a
director pursuant to the Voting Agreement. In accordance with its terms, the
Voting Agreement will terminate upon the conversion of the outstanding shares of
Preferred Stock into Common Stock upon the completion of the Offering.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee consists of Dr. Blair, Mr. Kinsella and Dr.
Rienhoff. The Compensation Committee makes recommendations regarding the
Company's 1996 Stock Plan, Non-Employee Directors' Stock Option Plan and
Employee Stock Purchase Plan and makes decisions concerning salaries and
incentive compensation for employees and consultants of the Company.
The Audit Committee consists of Dr. Rienhoff and Mr. Wollaeger. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors and reviews
and evaluates the Company's audit and control functions.
DIRECTOR COMPENSATION
The Company's directors do not currently receive any cash compensation for
services on the Board of Directors or any committee thereof, but directors may
be reimbursed for certain expenses
49
<PAGE> 51
in connection with attendance at Board and committee meetings. All directors are
eligible to participate in the Company's 1996 Stock Plan. Non-employee directors
receive automatic grants of options under the Company's Non-Employee Directors'
Stock Option Plan as described below. See "-- Equity Incentive Plan" and
"-- Non-Employee Directors' Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee. See "Certain Transactions" for a description of transactions between
the Company and entities affiliated with members of the Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
paid by, or accrued for services rendered to, the Company during the fiscal year
ended December 31, 1996 to the Company's Chief Executive Officer. No other
executive officer of the Company earned in excess of $100,000 in salary and
bonus during the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
- ------------------------------------------------------- -------- ------- ---------------
<S> <C> <C> <C>
Timothy J. Rink, M.D., Sc.D.
President, Chief Executive Officer and Chairman of
the Board............................................ $229,649 $50,000 $27,188
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits received by the Chief
Executive Officer which are available generally to all salaried employees of
the Company and certain perquisites and other personal benefits received by
the Chief Executive Officer which do not exceed the lesser of $50,000 or 10%
of any such officer's salary and bonus disclosed in this table. There were
no long-term compensation awards granted to the Chief Executive Officer
during the year ended December 31, 1996. As of December 31, 1996, the Chief
Executive Officer held 222,000 shares of restricted common stock having an
aggregate value of $83,250.
(2) Represents fees paid for consulting services rendered prior to employment
with the Company from January to March 1996.
EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
The Company has entered into employment agreements with Drs. Rink and
Foulkes dated as of January 23, 1996 (as amended on March 8, 1996) and August 6,
1996, respectively. Dr. Rink's employment agreement provides for the payment of
an annual base salary of $275,000. In the event that Dr. Rink's employment is
terminated, other than "for cause" (as defined in his employment agreement),
prior to March 1, 1999, Dr. Rink will be entitled to severance payments equal to
six times his then-current monthly base salary. Dr. Foulkes' employment
agreement provides for the payment of an annual base salary of $250,000. In the
event that Dr. Foulkes' employment is terminated, other than "for cause" (as
defined in his employment agreement), prior to the second anniversary of his
commencement of employment with the Company, Dr. Foulkes will be entitled to
severance payments equal to 12 times his then-current monthly base salary, plus
$100,000. In the event that Dr. Foulkes' employment is terminated, other than
"for cause," after the second anniversary of his commencement of employment with
the Company, Dr. Foulkes will be entitled to severance payments equal to nine
times his then-current monthly base salary. Pursuant to his employment
agreement, Dr. Foulkes was reimbursed for relocation expenses aggregating
approxi-
50
<PAGE> 52
mately $19,000. He was also paid a mortgage allowance of $7,500, and was loaned,
on an interest-free basis, $150,000 for use in connection with the purchase of a
home in San Diego, California. Such loan is payable on the earlier of one year
following termination of employment or four years following the loan date. So
long as Dr. Foulkes is then employed with the Company, he will receive a bonus
in the amount of $150,000 from the Company upon such four-year anniversary. See
"Certain Transactions."
EQUITY INCENTIVE PLAN
The Company adopted its 1996 Stock Plan in January 1996 and amended and
restated the 1996 Stock Plan in February 1997 (as amended and restated, the
"Stock Plan"). An aggregate of 2,000,000 shares of the Company's Common Stock
have been reserved for issuance pursuant to the exercise of stock awards granted
to employees, directors and consultants under the Stock Plan. The Stock Plan
will terminate in January 2006, unless sooner terminated by the Board.
The Stock Plan permits the granting of options intended to qualify as
incentive stock options ("Incentive Stock Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
employees (including officers and employee directors), and options that do not
so qualify ("Nonstatutory Stock Options," and, together with Incentive Stock
Options, the "Options") to employees (including officers and employee
directors), directors and consultants (including non-employee directors). In
addition, the Stock Plan permits the granting of stock appreciation rights
("SARs") appurtenant to or independently of Options, as well as stock bonuses
and rights to purchase restricted stock (Options, SARs, stock bonuses and rights
to purchase restricted stock are hereinafter referred to as "Stock Awards"). No
person is eligible to be granted Options and SARs covering more than 200,000
shares of the Company's Common Stock in any 12-month period.
The Stock Plan is administered by the Board or a committee appointed by the
Board. Subject to the limitations set forth in the Stock Plan, the Board has the
authority to select the persons to whom grants are to be made, to designate the
number of shares to be covered by each Stock Award, to determine whether an
Option is to be an Incentive Stock Option or a Nonstatutory Stock Option, to
establish vesting schedules, to specify the Option exercise price and the type
of consideration to be paid to the Company upon exercise and, subject to certain
restrictions, to specify other terms of Stock Awards. In addition, the Board has
delegated to Timothy J. Rink the authority to grant Stock Awards to certain
non-executive officer employees of the Company.
The maximum term of Options granted under the Stock Plan is ten years. The
aggregate fair market value, determined at the time of grant, of the shares of
Common Stock with respect to which Incentive Stock Options are exercisable for
the first time by an optionee during any calendar year (under all such plans of
the Company and its affiliates) may not exceed $100,000. Options granted under
the Stock Plan generally are non-transferable and expire three months after the
termination of an optionee's service to the Company. In general, if an optionee
is permanently disabled or dies during his or her service to the Company, such
person's Options may be exercised up to 12 months following such disability and
up to 18 months following such death.
The exercise price of Options granted under the Stock Plan is determined by
the Board of Directors in accordance with the guidelines set forth in the Stock
Plan. The exercise price of an Incentive Stock Option cannot be less than 100%
of the fair market value of the Common Stock on the date of the grant. The
exercise price of a Nonstatutory Stock Option cannot be less than 85% of the
fair market value of the Common Stock on the date of grant. Options granted
under the Stock Plan vest at the rate specified in the option agreement. The
exercise price of Incentive Stock Options granted to any person who at the time
of grant owns stock representing more than 10% of the total combined voting
power of all classes of the Company's capital stock must be at least 110% of the
fair market value of such stock on the date of grant and the term of such
Incentive Stock Options cannot exceed five years.
51
<PAGE> 53
Any stock bonuses or restricted stock purchase awards granted under the
Stock Plan shall be in such form and will contain such terms and conditions as
the Board deems appropriate. The purchase price under any restricted stock
purchase agreement will not be less than 85% of the fair market value of the
Company's Common Stock on the date of grant. Stock bonuses and restricted stock
purchase agreements awarded under the Stock Plan are generally non-transferable.
Pursuant to the Stock Plan, shares subject to Stock Awards that have
expired or otherwise terminated without having been exercised in full again
become available for grant, but shares subject to exercised stock appreciation
rights will not again become available for grant. The Board of Directors has the
authority to reprice outstanding Options and SARs and to offer optionees and
holders of SARs the opportunity to replace outstanding options and SARs with new
options or SARs for the same or a different number of shares.
Upon certain changes in control of the Company, all outstanding Stock
Awards under the Stock Plan must either be assumed or substituted by the
surviving entity. In the event the surviving entity determines not to assume or
substitute such Stock Awards, with respect to persons then performing services
as employees, directors or consultants, the time during which such Stock Awards
may be exercised will be accelerated and such Stock Awards will be terminated if
not exercised prior to such change in control.
As of March 31, 1997, the Company had issued 431,272 shares of Common Stock
pursuant to the exercise of purchase rights granted under the Stock Plan, and
had granted Incentive Stock Options to purchase an aggregate of 501,320 shares
of Common Stock. As of March 31, 1997, 1,067,408 shares of Common Stock remained
available for future grants under the Stock Plan.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In February 1997, the Company adopted its Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of Common Stock to non-employee directors of the
Company. The Directors' Plan is administered by the Board, unless the Board
delegates administration to a committee of at least two disinterested directors.
The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Directors' Plan is 240,000. Pursuant to the terms of
the Directors' Plan: (i) each person who upon the effective date of the
Directors' Plan was a Non-Employee Director automatically was granted a one-time
option to purchase 16,000 shares of Common Stock; (ii) each person who, after
the effective date of this offering, for the first time becomes a Non-Employee
Director automatically will be granted, upon the date of his or her initial
appointment or election to be a Non-Employee Director, a one-time option to
purchase 16,000 shares of Common Stock; and (iii) on the date of each annual
meeting of the stockholders of the Company after the effective date of this
offering (other than any such annual meeting held in 1997), each person who is
elected at such annual meeting to serve as a Non-Employee Director (other than a
person who receives a grant in accordance with (ii) above on or during the
three-month period preceding such date) automatically will be granted an option
to purchase 4,000 shares of Common Stock.
No options granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. Options granted under the
Directors' Plan vest monthly over a four-year period. The exercise price of
options under the Directors' Plan will equal 100% of the fair market value of
the Common Stock on the date of grant. Options granted under the Directors' Plan
are generally non-transferable. Unless otherwise terminated by the Board of
Directors, the Directors' Plan automatically terminates on the tenth anniversary
of the date of this offering. As of the date hereof, options to purchase an
aggregate of 80,000 shares of Common Stock have been granted under the
Directors' Plan.
52
<PAGE> 54
EMPLOYEE STOCK PURCHASE PLAN
In February 1997, the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 400,000 shares of Common Stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Under the Purchase Plan, the Board may
authorize participation by eligible employees, including officers, in periodic
offerings following the commencement of the Purchase Plan. The initial offering
under the Purchase Plan will commence on the date of this Prospectus and
terminate on April 30, 1999.
Unless otherwise determined by the Board, employees are eligible to
participate in the Purchase Plan only if they are employed by the Company or a
subsidiary of the Company designated by the Board for at least 20 hours per week
and are customarily employed by the Company or a subsidiary of the Company
designated by the Board for at least five months per calendar year. Employees
who participate in an offering may have up to 15% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld is then used to purchase
shares of the Common Stock on specified dates determined by the Board. The price
of Common Stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the Common Stock at the commencement date of
each offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has discretion to provide that each right to
purchase Common Stock will be assumed or an equivalent right substituted by the
successor corporation, or the Board may shorten the offering period and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase Common
Stock.
401(K) PLAN
In January 1996, the Board adopted an employee retirement savings plan (the
"401(k) Plan") covering certain of the Company's employees who have at least 30
days of service with the Company and work a minimum of 1,000 hours during the
plan year. Pursuant to the 401(k) Plan, eligible employees may elect to reduce
their current compensation by up to the statutorily prescribed annual limit
($9,500 in 1996) and have the amount of such reduction contributed to the 401(k)
Plan. In addition, eligible employees may make roll-over contributions to the
401(k) Plan from a tax-qualified retirement plan. The 401(k) Plan allows for the
Company to make discretionary matching and additional profit sharing
contributions, each as determined by a committee of the Board of Directors. No
discretionary or profit sharing contributions were made by the Company in 1996
and the Company has no intention of making such contributions in the near
future. Company contributions, if any, become 20% vested after two years of
service, with an additional 20% becoming vested for each year of service
thereafter. The 401(k) Plan is intended to qualify under Section 401 of the
Code, so that contributions by employees and the Company to the 401(k) Plan, and
income earned on the 401(k) Plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by the Company,
if any, will be deductible by the Company when made. The trustee under the
401(k) Plan, at the direction of each participant, invests the 401(k) Plan
employee salary deferrals in selected investment options.
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
The Company's Amended and Restated Bylaws provide that the Company will
indemnify its directors and executive officers and may indemnify its other
officers, employees and other agents to the fullest extent permitted by Delaware
law. The Company is also empowered under its Amended and Restated Bylaws to
enter into indemnification contracts with its directors and officers and to
53
<PAGE> 55
purchase insurance on behalf of any person it is required or permitted to
indemnify. Pursuant to this provision, the Company has entered into
indemnification agreements with each of its directors and executive officers and
certain of its key employees.
In addition, the Company's Restated Certificate of Incorporation provides
that directors of the Company will not be personally liable to the Company or
its stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the directors' duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which the director
derives any improper personal benefit. The Restated Certificate of Incorporation
also provides that if the Delaware General Corporation Law is amended after the
approval by the Company's stockholders of the Restated Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of the Company's directors
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
54
<PAGE> 56
CERTAIN TRANSACTIONS
The Company was incorporated in California in May 1995 and reincorporated
in Delaware in January 1996. In connection with its reincorporation, the Company
issued 80 shares of Common Stock to Avalon Medical Partners L.P. ("AMP"). From
May 1995 to March 1996, AMP and Avalon Bioventures II L.P. ("ABV") loaned the
Company an aggregate of $425,000 and $500,000, respectively, pursuant to
Convertible Promissory Notes issued by the Company to AMP and ABV. Such
Convertible Promissory Notes were canceled, and the interest thereon forgiven,
in connection with the sale and issuance of shares of Series A Preferred Stock
to AMP and ABV in March 1996. Kevin J. Kinsella, a member of the Board of
Directors of the Company and its Chairman of the Board and Acting Chief
Executive Officer at the time of these transactions, was a general partner of
AMP and ABV until their dissolution in February 1997.
Subsequent to its reincorporation in Delaware in January 1996 and through
March 31, 1997, the Company sold the following shares of its Common Stock and
Preferred Stock in private placement transactions: 2,006,800 shares of Common
Stock at a price of $.00125 per share; 215,720 shares of Common Stock at a price
of $.0875 per share; 529,040 shares of Common Stock at a price of $.125 per
share; 284,672 shares of Common Stock at a price of $.375 per share; 7,200
shares of Common Stock at a price of $1.50 per share; 8,191,282 shares of Series
A Preferred Stock at a price of $1.6625 per share; 666,665 shares of Series B
Preferred Stock at a price of $2.25 per share; 600,000 shares of Series C
Preferred Stock at a price of $2.50 per share; and 458,028 shares of Series D
Preferred Stock at a price of $4.50 per share. Upon the closing of this
offering, each share of Series A, Series B, Series C and Series D Preferred
Stock will automatically convert into one share of Common Stock.
The purchasers of Common and Preferred Stock described above included,
among others, the following officers and directors of the Company, entities
affiliated with certain of the Company's directors, and holders of more than 5%
of the Company's voting securities:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK(1)
COMMON ------------------------------------------
PURCHASER STOCK SERIES A SERIES B SERIES C SERIES D
- -------------------------------------------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Abingworth Bioventures SICAV(2)............. -- 2,105,262 -- -- --
Avalon Medical Partners L.P.(3)............. 348,000 255,638 -- -- --
Avalon Bioventures II L.P.(3)............... -- 300,751 -- -- --
Biotechnology Investments Limited(4)........ -- 1,142,856 -- -- --
DP III Associates, L.P.(4).................. -- 57,324 -- -- --
Domain Partners III, L.P.(4)................ -- 1,656,961 -- -- --
J. Gordon Foulkes, Ph.D..................... 208,000 -- -- -- --
Kingsbury Capital Partners, L.P. II(5)...... -- 601,503 -- -- --
Kevin J. Kinsella(3)........................ -- 30,074 -- -- --
NEA Ventures 1996, L.P.(6).................. -- 6,014 -- -- --
New Enterprise Associates VI
Limited Partnership(6).................... -- 1,654,135 -- -- --
Timothy J. Rink, M.D., Sc.D................. 492,000 15,036 -- -- --
Sequana Therapeutics, Inc.(3)............... -- -- -- 600,000 --
Lubert Stryer, M.D.......................... 60,000 45,112 -- -- --
</TABLE>
- ---------------
(1) Certain of these entities are parties to a voting agreement. See
"Management." The Purchasers of these securities are entitled to
registration rights after this offering. See "Description of Capital
Stock -- Registration Rights."
(2) Dr. Stephen W. Bunting, a Director of the Company from March 1996 until
February 1997, is a director of Abingworth Management Limited, the
investment adviser to Abingworth Bioventures SICAV.
55
<PAGE> 57
(3) Kevin J. Kinsella, a director of the Company and its Chairman of the Board
and Acting Chief Executive Officer until March 1996, was a general partner
of Avalon Medical Partners L.P. and Avalon Bioventures II L.P. until such
partnerships dissolved in February 1997. Mr. Kinsella is also the President,
Chief Executive Officer and a director of Sequana Therapeutics, Inc.
("Sequana").
(4) Dr. James C. Blair, a director of the Company, is a general partner of
Domain Associates, a venture capital investment firm. Domain Associates
manages Domain Partners III, L.P. and DP III Associates, L.P. and is the
U.S. venture capital advisor to Biotechnology Investments Limited.
(5) Timothy J. Wollaeger, a director of the Company, is the general partner of
Kingsbury Capital Partners, L.P. II.
(6) Dr. Hugh Y. Rienhoff, Jr., a director of the Company, was a partner of New
Enterprise Associates Development Corporation at the time of the
transactions listed above. New Enterprise Associates Development Corporation
manages NEA Ventures 1996, L.P. and New Enterprise Associates VI Limited
Partnership.
In connection with Sequana's purchase of Series C Preferred Stock, the
Company and Sequana entered into a Research Agreement dated April 2, 1996. See
"Business -- Corporate Collaborations." As noted above, Kevin J. Kinsella, a
director of the Company and its Chairman of the Board and Acting Chief Executive
Officer until February 1996, is the President and Chief Executive Officer of
Sequana.
The Company has employment agreements with Timothy J. Rink, its Chief
Executive Officer and President, and J. Gordon Foulkes, its Chief Technical
Officer. See "Management -- Employment Agreements and Severance Arrangements."
In October 1996, the Company loaned $150,000 to J. Gordon Foulkes, the
Company's Chief Technical Officer and a director of the Company, to assist with
the purchase of a residence in connection with Dr. Foulkes' relocation to San
Diego, California from Long Island, New York. The loan is interest-free and is
secured by a second deed of trust on the property purchased in part by such
funds. Such loan is payable on the earlier of one year following termination of
employment or four years following the loan date. So long as Dr. Foulkes is then
employed with the Company, he will receive a bonus in the amount of $150,000
from the Company upon such four-year anniversary. See "Management."
The Company has granted options to certain of its directors and executive
officers. The Company has also entered into an Indemnification Agreement with
each of its directors and executive officers.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
disinterested directors, and will continue to be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
56
<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 31, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) the Company's Chief Executive Officer, (ii) each of the Company's directors,
(iii) each holder of more than 5% of the Company's Common Stock and (iv) all
current directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED (1)
SHARES --------------------------------
5% STOCKHOLDERS, DIRECTORS BENEFICIALLY BEFORE AFTER
AND NAMED EXECUTIVE OFFICERS OWNED(1) OFFERING OFFERING
- ----------------------------------------------------- ------------ --------------- --------------
<S> <C> <C> <C>
Abingworth Bioventures SICAV......................... 2,105,262 16.4% 13.2%
c/o Sanne & Cie
Boite Postale 566
L-2015 Luxemberg
Biotechnology Investments Limited.................... 1,142,856 8.9% 7.2%
St. Peter Port House
Saus Marez Street
St. Peter Port, Guernsey
GY1 3PH
Entities affiliated with Domain Partners III,
L.P.(2)............................................ 1,715,284 13.3% 10.8%
One Palmer Square, Suite 515
Princeton, NJ 08542
Entities affiliated with New Enterprise Associates
Development Corporation(3)......................... 1,660,149 12.9% 10.4%
1119 St. Paul Street
Baltimore, MD 21202
Timothy J. Rink, M.A., M.D., Sc.D.(4)................ 491,036 3.8% 3.1%
J. Gordon Foulkes, Ph.D.............................. 208,000 1.6% 1.3%
James C. Blair, Ph.D.(5)............................. 1,715,284 13.3% 10.8%
Kevin J. Kinsella(6)................................. 779,221 6.1% 4.9%
Hugh Y. Rienhoff, Jr., M.D.(7)....................... 2,109,268 16.4% 13.3%
Lubert Stryer, M.D.(8)............................... 106,111 * *
Timothy J. Wollaeger(9).............................. 602,502 4.7% 3.8%
All directors and executive officers as a group (9
persons)........................................... 6,106,622 47.5% 38.4%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 12,849,950 shares of Common
Stock outstanding as of March 31, 1997 and 15,895,240 shares of Common Stock
outstanding after completion of this offering (in each case after giving
effect to the four-for-five reverse split of the Common Stock effected on
April 25, 1997 and the conversion of all outstanding shares of Preferred
Stock into Common Stock upon the completion of this offering).
(2) Represents 57,324 shares held by DP III Associates, L.P. ("DP III") and
1,656,961 shares held by Domain Partners III., L.P. ("Domain III"). One
Palmer Square Associates III, L.P. is the general partner of DP III and
Domain III.
(3) Represents 1,654,135 shares held by New Enterprise Associates VI Limited
Partnership and 6,014 shares held by NEA Ventures 1996, L.P. New Enterprise
Associates Development
57
<PAGE> 59
Corporation manages New Enterprise Associates VI Limited Partnership and NEA
Ventures 1996, L.P.
(4) Includes 222,000 shares held by Dr. Rink's spouse, Norma J. Rink, as her
separate property. Also includes 32,000 shares held by Dr. Rink as custodian
for two of his minor children. Dr. Rink disclaims beneficial ownership of
all of such shares.
(5) Represents 57,324 shares held by DP III and 1,656,961 shares held by Domain
III. Dr. Blair is a general partner of One Palmer Square Associates III,
L.P., the general partner of DP III and Domain III. Dr. Blair disclaims
beneficial ownership of such shares except to the extent of his partnership
interest therein. Also includes 999 shares subject to stock options granted
to Dr. Blair which are exercisable within 60 days of the date of this
Prospectus.
(6) Includes 600,000 shares held by Sequana Therapeutics, Inc., of which Mr.
Kinsella is the President and Chief Executive Officer and a member of the
board of directors. Mr. Kinsella disclaims beneficial ownership of such
shares. Also includes 999 shares subject to stock options granted to Mr.
Kinsella which are exercisable within 60 days of the date of this
Prospectus.
(7) Includes 2,105,262 shares held by Abingworth Bioventures SICAV. Dr. Rienhoff
is a director of Abingworth Management Limited, the investment adviser to
Abingworth Bioventures SICAV. Dr. Rienhoff disclaims beneficial ownership of
such shares except to the extent of his partnership interest therein. Also
includes 999 shares subject to stock options granted to Dr. Rienhoff which
are exercisable within 60 days of the date of this Prospectus.
(8) Includes 22,556 shares held by Dr. Stryer's spouse, Andrea S. Stryer. Also
includes 999 shares subject to stock options granted to Dr. Stryer which are
exercisable within 60 days of the date of this Prospectus.
(9) Includes 601,503 shares held by Kingsbury Capital Partners, L.P. II
("Kingsbury"). Mr. Wollaeger is the general partner of Kingsbury. Mr.
Wollaeger disclaims beneficial ownership of such shares except to the extent
of his partnership interest therein. Also includes 999 shares subject to
stock options granted to Mr. Wollaeger which are exercisable within 60 days
of the date of this Prospectus.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, $.001 par value, and, effective upon the closing of this
offering, 7,500,000 shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of March 31, 1997, there were 12,849,950 shares of Common Stock
outstanding, after giving effect to the conversion of all outstanding shares of
Preferred Stock into 9,915,975 shares of Common Stock.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by 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
of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any outstanding shares of
Preferred Stock. Holders of Common Stock have no preemptive, conversion,
subscription or other rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are, and
all shares of Common Stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
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<PAGE> 60
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into 9,915,975 shares of Common Stock. See Notes 6 and
11 of Notes to Financial Statements for a description of the currently
outstanding Preferred Stock. Following the conversion, the Company's Restated
Certificate of Incorporation will be amended and restated to delete all
references to such shares of Preferred Stock. Under the Certificate of
Incorporation, as amended and restated upon the closing of this offering (the
"Restated Certificate"), the Board has the authority, without further action by
stockholders, to issue up to 7,500,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges, qualifications and
restrictions granted to or imposed upon such Preferred Stock, including dividend
rights, conversion rights, voting rights, rights and terms of redemption,
liquidation preference and sinking fund terms, any or all of which may be
greater than the rights of the Common Stock. The issuance of Preferred Stock
could adversely affect the voting power of holders of Common Stock and reduce
the likelihood that such holders will receive dividend payments and payments
upon liquidation. Such issuance could have the effect of decreasing the market
price of the Common Stock. The issuance of Preferred Stock could have the effect
of delaying, deterring or preventing a change in control of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
After this offering, the holders of 9,915,975 shares of Common Stock will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act, pursuant to that certain Amended and Restated Investor
Rights Agreement dated December 27, 1996 (the "Investors' Rights Agreement").
Under the terms of the Investors' Rights Agreement, if the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders exercising registration
rights, such holders are entitled to notice of such registration and are
entitled, subject to certain limitations, to include shares therein. Commencing
with the date that is one year after this offering, the holders may also require
the Company to file a registration statement under the Securities Act with
respect to their shares, and the Company is required to use its best efforts to
effect to such registration. Furthermore, the holders may require the Company to
register their shares on Form S-3 when such form becomes available to the
Company. Generally, the Company is required to bear all registration and selling
expenses incurred in connection with any such registrations. These rights are
subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration. Such registration rights terminate on the seventh anniversary of
the effective date of the Offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is governed by the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales or other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. The existence of this provision
would be expected to have anti-takeover effects with respect to transactions not
approved in advance by the Board of Directors, such as discouraging takeover
attempts that might result in a premium over the market price of the Common
Stock.
The Company's Restated Certificate provides that any action required or
permitted to be taken by stockholders of the Company must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing. In addition, special meetings of the
59
<PAGE> 61
stockholders of the Company may be called only by the Chairman of the Board, the
President of the Company, by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors, or by the
holders of 10% of the outstanding voting stock of the Company. The Company's
Restated Certificate also specifies that the authorized number of directors may
be changed only by resolution of the Board of Directors. These and other
provisions contained in the Restated Certificate and the Company's Amended and
Restated Bylaws could delay or make more difficult certain types of transactions
involving an actual or potential change in control of the Company or its
management (including transactions in which stockholders might otherwise receive
a premium for their shares over then current prices) and may limit the ability
of stockholders to remove current management of the Company or approve
transactions that stockholders may deem to be in their best interests and,
therefore, could adversely affect the price of the Company's Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Harris
Trust Company of California.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
the Offering because of certain contractual and legal restrictions on resale
described below, sales of substantial amounts of Common Stock of the Company in
the public market after the restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
Upon completion of the Offering, the Company will have 15,895,240 shares of
Common Stock outstanding, assuming no exercise of currently outstanding options,
but including warrants to purchase an aggregate of 45,290 shares of Common Stock
to be exercised upon the closing of this offering. Of these shares, the
3,000,000 shares sold in this offering (plus any additional shares sold upon
exercise of the Underwriters' over-allotment 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
("Affiliates"). Approximately 10,826,367 shares of Common Stock will be fully
vested and eligible for sale under Securities Act Rules 144 and 701 on the
ninety-first day after the effectiveness of this offering. Stockholders of the
Company holding an aggregate of 10,762,778 of these 10,826,367 shares have
agreed pursuant to lock-up agreements with the Underwriters, subject to certain
limited exceptions, not to sell or otherwise dispose of any of the shares held
by them for a period of 180 days after the effective date of this offering
without the prior written consent of Alex. Brown & Sons Incorporated. At the end
of such 180-day period, an additional 217,722 shares of Common Stock (plus
approximately 15,985 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 1,849,725 shares of Common Stock held by
existing stockholders will become eligible for sale at various times over a
period of two years and could be sold earlier if the holders exercise any
available registration rights. The holders of 9,915,977 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 beginning one year from
the effective date of this offering. 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 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
60
<PAGE> 62
addition, the Company expects to file a registration statement on Form S-8
registering a total of approximately 2,170,168 shares of Common Stock subject to
outstanding stock options or reserved for issuance under the Company's stock
option plans. Such registration statement is expected to be filed and to become
effective as soon as practicable after the effective date of this offering.
Shares registered under such registration statement will, subject to Rule 144
volume limitations applicable to Affiliates, be available for sale in the open
market, unless such shares are subject to vesting restrictions with the Company
or the lock-up agreements described above.
In general, under Rule 144 as in effect on the date of this Prospectus,
beginning 90 days after the effective date of the Offering, an Affiliate of the
Company, or a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares (as defined under Rule 144) for at least
one year is entitled to sell within any three-month period a number of shares
that does not exceed greater of (i) one percent of the then outstanding shares
of the Company's Common Stock or (ii) the average weekly trading volume of the
Company's Common Stock in the Nasdaq National Market during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to the manner of sale, notice, and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who was not an Affiliate of the Company at any time during the 90 days
immediately preceding the sale and who has beneficially owned Restricted Shares
for at least two years is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares
without complying with the public information, volume and notice provisions of
Rule 144.
61
<PAGE> 63
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Hambrecht & Quist LLC and Robertson, Stephens &
Company LLC, have severally agreed to purchase from the Company the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
---------
<S> <C>
Alex. Brown & Sons Incorporated.................................................
Hambrecht & Quist LLC...........................................................
Robertson, Stephens & Company LLC...............................................
---------
Total................................................................. 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all the shares of the Common Stock offered hereby if
any of such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of 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 not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the initial
public offering, the offering price and other selling terms may be changed by
the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it in the above table bears to 3,000,000, and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 3,000,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
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<PAGE> 64
Stockholders of the Company, holding in the aggregate 10,681,219 shares of
Common Stock, have agreed not to offer, sell, contract to sell or otherwise
dispose of (or enter into any transaction which is designed to, or could be
expected to, result in the disposition of any portion of) any Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Alex. Brown & Sons Incorporated. The Company has entered into a
similar agreement, except that it may issue, and grant options to purchase,
shares of Common Stock under its 1996 Stock Plan, Employee Stock Purchase Plan
and Non-Employee Directors' Stock Option Plan and pursuant to currently
outstanding warrants. See "Shares Eligible for Future Sale."
In May 1996, Hambrecht & Quist Group, an entity affiliated with Hambrecht &
Quist LLC, purchased 222,221 shares of the Company's Series B Preferred Stock
for a purchase price of $2.25 per share, or an aggregate of $500,000. Such
shares will convert into 222,221 shares of Common Stock upon the closing of this
offering.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
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 will be determined by negotiation among the Company and the
Representatives. The factors to be considered in such negotiations include
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company and the Representatives believe to be comparable to the
Company, estimates of the business potential of the Company, the present stage
of the Company's development and other factors deemed relevant.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in the offering, if the Underwriters repurchase previously distributed
Common Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the Common
Stock above market levels that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward LLP, San Diego, California. As of the
date of this Prospectus, certain members and associates of Cooley Godward own an
aggregate of 30,074 shares of Common Stock through an investment partnership.
Certain legal matters will be passed upon for the Underwriters by Morrison &
Foerster LLP, New York, New York.
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<PAGE> 65
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996
and for the period from May 8, 1995 (inception) through December 31, 1995 and
for the year ended December 31, 1996 included in this Prospectus and elsewhere
in 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.
The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents and Proprietary Rights," "Business -- Patents
and Proprietary Rights," and other references herein to intellectual property of
the Company have been reviewed and approved by Fish & Richardson, PC, San Diego,
California, patent counsel for the Company, as experts on such matters, and are
included herein in reliance upon that review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Common Stock offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus,
which is a part of the Registration Statement, omits certain information,
exhibits, schedules and undertakings set forth in the Registration Statement.
For further information pertaining to the Company and the Common Stock offered
hereby, reference is made to such Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents or
provisions of any contract or other document referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part of the
Registration Statement may be obtained from such offices upon the payment of the
fees prescribed by the Commission. In addition, registration statements and
certain other filings made with the Commission through its Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system are publicly available
through the Commission's web site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR.
64
<PAGE> 66
AURORA BIOSCIENCES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited)........ F-3
Statements of Operations for the period from May 8, 1995 (inception) to December 31,
1995, the year ended December 31, 1996, and the three month periods ended March 31,
1996 and 1997 (unaudited)........................................................... F-4
Statements of Stockholders' Equity for the period from May 8, 1995 (inception) to
December 31, 1995, the year ended December 31, 1996 and the three month period ended
March 31, 1997 (unaudited).......................................................... F-5
Statements of Cash Flows for the period from May 8, 1995 (inception) to December 31,
1995, the year ended December 31, 1996 and the three month periods ended March 31,
1996 and 1997 (unaudited)........................................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 67
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Aurora Biosciences Corporation
We have audited the accompanying balance sheets of Aurora Biosciences
Corporation as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for the period from May 8, 1995
(inception) to December 31, 1995 and for the year ended December 31, 1996. 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 Aurora Biosciences
Corporation at December 31, 1995 and 1996, and the results of its operations and
its cash flows for the period from May 8, 1995 (inception) to December 31, 1995
and for the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
April 7, 1997,
except as to Note 11, as to which the date is
April 25, 1997
F-2
<PAGE> 68
AURORA BIOSCIENCES CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------- MARCH 31, STOCKHOLDERS' EQUITY
1995 1996 1997 AT MARCH 31, 1997
--------- ----------- ----------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ 11,119 $ 3,914,038 $ 4,500,743
Investment securities, available-for-sale -- 9,252,870 9,137,891
Accounts receivable under collaborative
agreements............................... -- 1,116,523 150,000
Notes receivable from officers and
employees................................ 69,798 -- --
Prepaid expenses............................ 18,333 228,029 358,131
Other current assets........................ -- 169,175 450,437
--------- ----------- -----------
Total current assets................ 99,250 14,680,635 14,597,202
Equipment, furniture and leaseholds, net...... 9,110 1,901,515 2,792,643
Notes receivable from officers and
employees................................... -- 200,000 260,000
Other assets.................................. 6,440 732,374 693,903
--------- ----------- -----------
$ 114,800 $17,514,524 $18,343,748
========= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 41,589 $ 299,819 $ 540,850
Accrued compensation........................ 9,938 319,770 152,140
Notes payable............................... 475,000 -- --
Unearned revenue -- 250,000 1,105,000
Capital lease obligations, current
portion.................................. -- 350,247 472,190
--------- ----------- -----------
Total current liabilities........... 526,527 1,219,836 2,270,180
Capital lease obligations, less current
portion..................................... -- 1,110,897 1,388,912
Commitments
Stockholders' equity:
Convertible preferred stock, $.001 par
value, 25,000,000 shares authorized, no
shares issued and outstanding at December
31, 1995 and 9,915,975 shares issued and
outstanding at December 31, 1996 and
March 31, 1997 (7,500,000 shares
authorized and no shares issued and
outstanding pro forma); aggregate
liquidation preference of $18,679,128 at
December 31, 1996 and March 31, 1997..... -- 9,916 9,916 $ --
Common stock, $.001 par value, 50,000,000
shares authorized, 80, 2,865,160 and
2,933,975 shares issued and outstanding
at December 31, 1995, 1996 and March 31,
1997, respectively (12,849,950 shares pro
forma)................................... -- 2,865 2,934 12,850
Additional paid-in capital.................. -- 18,887,790 22,335,939 22,335,939
Deferred compensation....................... -- (371,573) (3,477,298) (3,477,298)
Accumulated deficit......................... (411,727) (3,345,207) (4,186,835) (4,186,835)
--------- ----------- ----------- -----------
Total stockholders' equity.......... (411,727) 15,183,791 14,684,656 $ 14,684,656
--------- ----------- ----------- ===========
$ 114,800 $17,514,524 $18,343,748
========= =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 69
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1995 YEAR ENDED THREE MONTHS ENDED MARCH
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, 31, --------------------------
1995 1996 1996 1997
-------------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue (Note 9):
UHTS system development........ $ -- $ 2,116,523 $ -- $ 650,000
Screening services............. -- 100,000 -- 405,000
License fees................... -- -- -- 487,500
---------- ----------- ---------- -----------
Total revenue.......... -- 2,216,523 -- 1,542,500
Operating expenses:
Cost of UTHS system
development................. -- -- -- 687,612
Cost of screening services..... -- -- -- 287,440
Research and development....... 365,548 4,395,914 405,138 910,829
General and administrative..... 46,179 1,275,032 137,246 642,168
---------- ----------- ---------- -----------
Total operating
expenses............. 411,727 5,670,946 542,384 2,528,049
---------- ----------- ---------- -----------
Loss from operations............. (411,727) (3,454,423) (542,384) (985,549)
Interest income.................. -- 580,382 43,173 203,183
Interest expense................. -- (59,439) - (59,262)
---------- ----------- ---------- -----------
Net loss......................... $ (411,727) $(2,933,480) $ (499,211) $ (841,628)
========== =========== ========== ===========
Pro forma net loss per share..... $ (0.15) $ (0.26) $ (0.09) $ (0.06)
========== =========== ========== ===========
Shares used in computing pro
forma net loss per share....... 2,759,485 11,139,402 5,837,373 13,398,643
========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 70
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
------------------ ------------------ PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
--------- ------ --------- ------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock..... -- $ -- 80 $ -- $ -- $ -- $ -- $ --
Net loss..................... -- -- -- -- -- -- (411,727) (411,727)
--------- ------ --------- ------ ----------- ----------- ----------- -----------
Balance at December 31,
1995..................... -- -- 80 -- -- -- (411,727) (411,727)
Issuance of Series A
preferred stock, net....... 7,634,895 7,635 -- -- 12,617,058 -- -- 12,624,693
Issuance of Series A
preferred stock for
cancellation of notes
payable.................... 556,387 556 -- -- 924,441 -- -- 924,997
Issuance of Series B
preferred stock, net....... 666,665 667 -- -- 1,494,889 -- -- 1,495,556
Issuance of Series C
preferred stock, net....... 600,000 600 -- -- 1,496,800 -- -- 1,497,400
Issuance of Series D
preferred stock, net....... 458,028 458 -- -- 2,054,943 -- -- 2,055,401
Issuance of common stock,
net........................ -- -- 2,677,077 2,677 90,847 -- -- 93,524
Issuance of common stock for
acquired technology........ -- -- 188,000 188 63,312 -- -- 63,500
Deferred compensation related
to stock and stock
options.................... -- -- -- -- 145,500 (373,742) -- (228,242)
Amortization of deferred
compensation............... -- -- -- -- -- 2,169 -- 2,169
Net loss..................... -- -- -- -- -- -- (2,933,480) (2,933,480)
--------- ------ --------- ------ ----------- ----------- ----------- -----------
Balance at December 31,
1996..................... 9,915,975 9,916 2,865,157 2,865 18,887,790 (371,573) (3,345,207) 15,183,791
Costs incurred in connection
with issuance of Series D
preferred stock
(unaudited)................ -- -- -- -- (36,528) -- -- (36,528)
Issuance of common stock, net
(unaudited)................ -- -- 68,818 69 44,273 -- -- 44,342
Deferred compensation related
to stock and stock options
(unaudited)................ -- -- -- -- 3,440,404 (3,212,162) -- 228,242
Amortization of deferred
compensation (unaudited)... -- -- -- -- -- 106,437 -- 106,437
Net loss (unaudited)......... -- -- -- -- -- -- (841,628) (841,628)
--------- ------ --------- ------ ----------- ----------- ----------- -----------
Balance at March 31, 1997
(unaudited).............. 9,915,975 $9,916 2,933,975 $2,934 $22,335,939 $(3,477,298) $(4,186,835) $14,684,656
========= ====== ========= ====== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 71
AURORA BIOSCIENCES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED MARCH
MAY 8, 1995 31,
(INCEPTION) TO YEAR ENDED -------------------------
DECEMBER 31, 1995 DECEMBER 31, 1996 1996 1997
----------------- ----------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss....................................... $(411,727) $(2,933,480) $ (499,211) $ (841,628)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization................ 1,822 156,861 1,098 152,449
Forgiveness of notes receivable from officers
and employees.............................. -- 93,129 -- --
Issuance of common stock in exchange for
acquired technology........................ -- 63,500 -- --
Amortization of deferred compensation........ -- 2,169 -- 106,437
Changes in operating assets and liabilities:
Accounts receivable under collaborative
agreements............................... -- (1,116,523) -- 966,523
Prepaid expenses and other current
assets................................... (18,333) (378,871) (127,084) (411,364)
Accounts payable and accrued compensation...... 51,527 339,820 70,953 301,643
Unearned revenue............................... -- 250,000 -- 855,000
--------- ----------- ----------- -----------
Net cash (used in) provided by operating
activities................................... (376,711) (3,523,395) (554,244) 1,129,060
--------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of investment securities............. -- (12,147,818) (6,642,110) (1,485,021)
Sales and maturities of investment
securities................................... -- 2,894,948 -- 1,600,000
Purchases of equipment, furniture and
leaseholds................................... (10,932) (458,657) (102,741) (537,431)
Notes receivable from officers and employees... (69,798) (223,331) (23,331) (60,000)
Other assets................................... (6,440) (725,934) (72,209) 38,399
--------- ----------- ----------- -----------
Net cash used in investing activities.......... (87,170) (10,660,792) (6,840,391) (444,053)
--------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Issuance (cost) of convertible preferred stock,
net.......................................... -- 17,673,050 12,624,694 (36,528)
Issuance of common stock, net of repurchases... -- 93,524 2,509 44,342
Issuance of notes payable...................... 475,000 449,997 449,997 --
Principal payments on capital lease
obligations.................................. -- (129,465) -- (106,116)
--------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities................................... 475,000 18,087,106 13,077,200 (98,302)
--------- ----------- ----------- -----------
Net increase in cash and cash equivalents...... 11,119 3,902,919 5,682,565 586,705
Cash and cash equivalents at beginning of
period....................................... -- 11,119 11,119 3,914,038
--------- ----------- ----------- -----------
Cash and cash equivalents at end of period..... $ 11,119 $ 3,914,038 $ 5,693,684 $ 4,500,743
========= =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid.................................. $ -- $ 59,439 $ -- $ 59,262
========= =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital leases........ $ -- $ 1,590,609 $ -- $ 506,074
========= =========== =========== ===========
Conversion of notes payable to convertible
preferred stock.............................. $ -- $ 924,997 $ 924,997 $ --
========= =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 72
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1996 AND PERTAINING TO MARCH 31, 1997
AND THE
THREE-MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
Aurora Biosciences Corporation (the "Company" or "Aurora") was incorporated
in California on May 8, 1995 and subsequently re-incorporated in Delaware on
January 22, 1996. The Company designs and develops proprietary drug discovery
systems, services and technologies to accelerate and enhance the discovery of
new medicines. Aurora is developing an integrated technology platform comprised
of a portfolio of proprietary fluorescent assay technologies and an ultra-high
throughput screening ("UHTS") system designed to allow assay miniaturization and
to overcome many of the limitations associated with the traditional drug
discovery process. This integrated technology platform will support functional
genomics in mammalian cells, facile assay development and extremely rapid
screening of molecular targets to identify lead compounds with novel therapeutic
potential.
Interim Financial Information (Unaudited)
The financial statements at March 31, 1997 and for the three-month periods
ended March 31, 1996 and 1997 are unaudited, but include all adjustments
(consisting only of normal recurring adjustments) which management considers
necessary for a fair statement of the financial position at such dates and the
operating results and cash flows for those periods. Results for interim periods
are not necessarily indicative of results for the entire year or any future
periods.
Cash, Cash Equivalents and Investment Securities
The Company considers all highly-liquid investments with maturities of
three months or less from the date of purchase to be cash equivalents.
Management determines the appropriate classification of its cash equivalents and
investment securities at the time of purchase and re-evaluates such
determination as of each balance sheet date. Management has classified the
Company's cash equivalents and investment securities as available-for-sale
securities in the accompanying financial statements. Available-for-sale
securities are carried at fair value, with unrealized gains and losses reported
in a separate component of stockholders' equity. The cost of debt securities
classified as available-for-sale is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion, as well as
interest and dividends, are included in interest income. Realized gains and
losses are also included in interest income. The cost of securities sold is
based on the specific identification method.
The Company invests its excess cash in U.S. Government and agency
securities and debt instruments of financial institutions and corporations with
strong credit ratings. The Company has established guidelines regarding
diversification of its investments and their maturities which should maintain
safety and liquidity.
Equipment, Furniture and Leaseholds
Equipment, including capitalized leased equipment, furniture and leaseholds
is stated at cost less accumulated depreciation and amortization. Depreciation
and amortization is calculated using the straight-line method over the shorter
of the estimated useful lives of the respective assets (generally three to five
years) or the term of the applicable lease.
F-7
<PAGE> 73
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
Revenue under collaborative agreements typically consists of non-refundable
up-front fees, ongoing research and co-development payments, and milestone,
royalty and other contingent payments. Revenue from non-refundable up-front fees
is recognized upon signing of the agreement. Revenue from ongoing research and
co-development payments is recognized ratably over the term of the agreement,
and the Company believes such payments will approximate the research and
development expense being incurred associated with the agreement. Revenue from
milestone, royalty and other contingent payments will be recognized as earned.
Revenue from screen development and screening and other services is
recognized as earned. Advance payments received under any agreements in excess
of amounts earned are classified as unearned revenue. Revenue under cost
reimbursement contracts is recognized as the related costs are incurred.
Substantially all of the revenue recorded to date has been derived from
agreements with two collaborators (Note 9).
Research and Development Expense
All research and development costs are expensed in the period incurred.
Pro Forma Net Loss Per Share
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding during the period. Pursuant to certain requirements
of the Securities and Exchange Commission, ("SEC"), common and common equivalent
shares issued by the Company during the twelve months immediately preceding the
initial filing of the Company's Registration Statement, including common and
common equivalent shares issued after December 31, 1996, have been included in
the calculation of the shares used in computing pro forma net loss per share as
if these shares were outstanding for all periods presented, using the treasury
stock method and assumed public offering price of $10 per share. In addition,
the calculation of the shares used in computing pro forma net loss per share
includes convertible preferred stock not included above that will automatically
convert into common stock upon completion of an initial public offering, as if
they were converted into common stock as of the original date of issuance.
Accounting Standard on Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," regarding the impairment of
long-lived assets, identifiable intangibles and goodwill related to those assets
when there are indications that the carrying values of those assets may not be
recoverable. The adoption of this standard had no impact on the Company's
financial position.
Accounting Standard on Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute loss per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the anti-dilutive
effect of stock options will be excluded. The impact is not expected to be
material.
F-8
<PAGE> 74
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
2. CASH EQUIVALENTS AND INVESTMENT SECURITIES
A summary of the estimated fair value of cash equivalents and investment
securities is shown below:
<TABLE>
<CAPTION>
DECEMBER
31, MARCH 31,
1996 1997
----------- -----------
<S> <C> <C>
Money market funds............................. $ 3,141,747 $ 2,707,137
U.S. government securities..................... 3,738,755 3,146,731
U.S. corporate securities...................... 5,012,834 6,190,810
Other debt securities.......................... 1,000,241 1,500,343
----------- -----------
Total debt securities..................... 12,893,577 13,545,021
Less amounts classified as cash equivalents.... (3,640,707) (4,407,130)
----------- -----------
Total investment securities.......... $ 9,252,870 $ 9,137,891
=========== ===========
</TABLE>
The estimated fair value of cash equivalents and investment securities
approximates cost and no unrealized gains or losses were reported as of December
31, 1996 or March 31, 1997. Realized gains or losses on sales of
available-for-sale securities in 1996 were not significant. There were no
realized gains or losses in the period from May 8, 1995 (inception) to December
31, 1995 or the three month period ended March 31, 1997. The estimated fair
value of available-for-sale debt securities as of December 31, 1996 by
contractual maturity is as follows: $9.7 million due within one year and $3.2
million due in one to two years.
3. NOTES RECEIVABLE FROM OFFICERS AND EMPLOYEES
Notes receivable from officers and employees generally consist of
relocation and housing loans to assist in the relocation of new employees. These
notes are generally secured by all shares of the Company's common stock owned by
the individual or by a deed of trust on the individual's principal residence.
During 1996, the notes outstanding at December 31, 1995 were forgiven. Notes
receivable as of December 31, 1996 and March 31, 1997 include an interest-free
$150,000 loan to an officer and director of the Company which is secured by a
deed of trust on the individual's principal residence.
F-9
<PAGE> 75
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. EQUIPMENT, FURNITURE AND LEASEHOLDS
Equipment, furniture and leaseholds consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- ----------
1995 1996 1997
------- ---------- ----------
<S> <C> <C> <C>
Scientific equipment........................ $ -- $1,255,749 $1,957,593
Office furniture, computers and equipment... 10,932 731,423 1,063,522
Leasehold improvements...................... -- 73,026 78,721
------- ---------- ----------
10,932 2,060,198 3,099,836
Less accumulated depreciation and
amortization............................. (1,822) (158,683) (307,193)
------- ---------- ----------
$ 9,110 $1,901,515 $2,792,643
======= ========== ==========
</TABLE>
Equipment, furniture and leaseholds at December 31, 1996 and March 31, 1997
includes scientific equipment acquired under capital leases of $1,065,173 and
$1,281,972, respectively, and office furniture, computers and equipment acquired
under capital leases of $525,436 and $814,711, respectively. The amount of
related amortization included in accumulated depreciation and amortization at
December 31, 1996 and March 31, 1997 was $120,550 and $247,074, respectively.
5. COMMITMENTS
Consulting Agreements
The Company has entered into various consulting agreements with its
Scientific Advisors and others for aggregate minimum annual fees of
approximately $215,000. The agreements generally provide for four or five-year
terms and are cancelable by either party upon 60 or 90 days written notice.
During the period from May 8, 1995 (inception) through December 31, 1995, the
year ended December 31, 1996 and the three month period ended March 31, 1996 and
1997, the Company expensed approximately $95,000, $332,000, $158,000 and
$67,000, respectively, of fees and expense reimbursements related to these
agreements.
In February 1996, in connection with the various consulting agreements, the
Company issued 48,000 shares of common stock for $.001 per share, representing
the fair value on the date of grant as determined by the Board of Directors,
pursuant to restricted stock purchase agreements, excluding shares issued to
founders and directors of the Company who also serve as consultants as the
Scientific Advisors.
Technology and Licensing Agreements
The Company has entered into various strategic technology agreements with
third parties regarding the development of instrumentation technology. These
agreements contain varying terms and provisions which require the Company to
make payments to the third parties. Pursuant to these agreements, the Company
paid approximately $550,000 in 1996 and $179,000 during the three month period
ended March 31, 1997 and is obligated to make future payments totaling
approximately $1.2 million in 1997 and 1998 if all milestones are met.
The Company has also entered into various license agreements with academic
institutions regarding certain inventions and technologies. Most such agreements
may be terminated by the Company with 60 days written notice without significant
financial penalty. Pursuant to these agreements, the Company paid approximately
$120,000 in 1996 and $24,000 during the three month period ended March 31, 1997
and is obligated to make future payments totaling approxi-
F-10
<PAGE> 76
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
mately $830,000 over the next seven years. In addition, the Company is required
to make royalty payments upon the sale of products incorporating inventions or
technologies covered under these agreements.
Leases
The Company leases its facilities and certain equipment under operating
lease agreements which expire at dates through September 2008. Lease payments
are subject to future increases based upon increases in the Consumer Price
Index, taxes and insurance. Rent expense totaled approximately $462,000 in the
year ended December 31, 1996 and $17,000 and $214,000 for the three month
periods ended March 31, 1996 and 1997, respectively.
The Company leases certain equipment under a $4.5 million capital lease
line which expires in December 1997. At December 31, 1996 and March 31, 1997,
the Company had $1.9 million and $2.4 million, respectively, available under the
capital lease line for future equipment acquisitions.
Annual future minimum lease payments for operating and capital leases as of
December 31, 1996, including payments required under operating leases entered
into during 1997, are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- --------------
<S> <C> <C>
Years ended December 31,
1997........................................... $ 1,059,040 $ 542,652
1998........................................... 2,001,947 542,652
1999........................................... 1,969,414 548,469
2000........................................... 1,377,325 237,413
2001........................................... 1,418,645 --
Thereafter..................................... 10,676,814 --
----------- -----------
Total minimum lease payments................... $ 18,503,185 1,871,186
===========
Less amounts representing interest............. (410,042)
-----------
Present value of capital lease payments........ 1,461,144
Less current portion........................... (350,247)
-----------
Capital lease obligations, noncurrent.......... $1,110,897
===========
</TABLE>
In connection with a facility lease agreement entered into during April
1997, the Company is required to place a Letter of Credit restricting $1.25
million of its cash balance and the Company will be required to increase the
restricted cash balance by an additional $1.25 million upon the occurrence of
certain events. The Letter of Credit will be released over the next three to
four years on a predetermined schedule.
F-11
<PAGE> 77
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Convertible preferred stock issued and outstanding at December 31, 1996 and
March 31, 1997 is as follows:
<TABLE>
<CAPTION>
SHARES
ISSUED AND PREFERENCE IN
AUTHORIZED OUTSTANDING PAR VALUE LIQUIDATION
---------- ----------- --------- --------------
<S> <C> <C> <C> <C>
Series A....................... 10,500,000 8,191,282 $ 8,191 $ 13,618,006
Series B....................... 833,332 666,665 667 1,499,996
Series C....................... 800,000 600,000 600 1,500,000
Series D....................... 572,536 458,028 458 2,061,126
--------- ------ -----------
9,915,975 $ 9,916 $ 18,679,128
========= ====== ===========
</TABLE>
The Company issued shares of Series A, B and C preferred stock at $1.66,
$2.25 and $2.50 per share, respectively, pursuant to March 1996 preferred stock
purchase agreements. The Company issued Series D preferred stock at $4.50 per
share pursuant to a December 1996 preferred stock purchase agreement.
The preferred stock is convertible into equal shares of common stock,
subject to certain anti-dilution provisions, at any time at the option of the
holder or automatically upon (i) the consent of not less than 67% of the
preferred stockholders, or (ii) the closing of an underwritten public offering
of common stock with gross proceeds of not less than $10,000,000 at not less
than $7.50 per common share. The holder of each share of preferred stock is
currently entitled to one vote for each share of common stock into which it
would convert.
Holders of Series A, B, C and D preferred stock are entitled to
noncumulative annual dividends of $0.133, $0.18, $0.20 and $0.36 per share,
respectively. These dividends are payable prior and in preference to any
declaration or payment of any dividend or other distribution on common stock
payable other than in common stock, when and if declared by the Board of
Directors. The Company has never declared or paid dividends on its capital stock
and does not intend to pay dividends in the foreseeable future.
In March 1996, the Company issued 556,389 shares of Series A preferred
stock in exchange for the cancellation of promissory notes payable totaling
approximately $925,000 (see Note 10).
Common Stock
The majority of the outstanding shares of common stock have been issued to
founders, directors and employees of, and consultants to, the Company. In
connection with certain stock purchase agreements, the Company has the option to
repurchase, at the original issuance price, the unvested shares in the event of
termination of employment or engagement. Shares issued under these agreements
generally vest over four years. At December 31, 1996 and March 31, 1997,
1,652,853 and 1,626,747 shares, respectively, of common stock were subject to
repurchase by the Company.
During 1996, the Company issued 188,000 shares of common stock in exchange
for certain licenses and rights. Research and development expense of $63,500 was
recorded related to such issuances, representing the fair value of such shares
as determined by the Board of Directors on the date of grant.
In December 1996, the Board of Directors committed to issue 71,072 shares
of common stock under stock purchase or option agreements to employees of the
Company on the date of grant. The
F-12
<PAGE> 78
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
shares were priced at $0.38 per share, representing the fair value of such
shares as determined by the Board of Directors on the date of grant. In
connection with this commitment, the Company recorded deferred compensation of
approximately $228,000. The Company is also obligated to issue 4,000 shares of
common stock upon the completion of a milestone in connection with a license
agreement.
Warrants
In May 1996, the Company issued warrants to purchase 54,320 shares of
Series A preferred stock at $1.66 per share to a leasing company in connection
with the execution of a $3.5 million capital lease agreement (Note 5). The
warrants expire in May 2002, subject to certain extensions based on the
utilization of the capital lease line. The warrants remain outstanding at
December 31, 1996 and March 31, 1997.
Deferred Compensation
The Company records and amortizes over the related vesting periods deferred
compensation representing the difference between the price per share of
restricted stock issued or the exercise price of stock options granted and the
deemed fair value (for SEC purposes) of the Company's common stock at the date
of issuance or grant. Shares included in the computation of deferred
compensation at December 31, 1996 include restricted stock issued or committed
and stock options granted or committed from April 1996 through December 1996.
Gross deferred compensation at December 31, 1996 and March 31, 1997 totaled
$373,742 and $3,585,904, respectively, and related amortization expense totaled
$2,169 and $106,437 in 1996 and 1997, respectively.
Stock Option Plans; Stock Purchase Plan
In January 1996, the Company adopted the 1996 Stock Plan (the "Stock
Plan"), under which 800,000 shares of the Company's common stock were reserved
for future issuance. During February 1997, the Board of Directors increased the
number of shares reserved under the Plan to 2,000,000. The Company's
stockholders approved this increase in April 1997. The Stock Plan provides for
the grant of incentive stock options and stock appreciation rights to employees
and nonstatutory stock options and stock purchase rights to employees, directors
and consultants.
All options and stock appreciation rights granted under the Stock Plan
expire not later than ten years from the date of grant and vest and become fully
exercisable after not more than five years of continued employment or
engagement. Options generally vest either monthly over four years or with
one-fourth of the shares vesting after one year and the remainder vesting
ratably over the next three years. The exercise price of incentive stock options
must be equal to at least the fair market value on the date of grant, and the
exercise price of nonstatutory options may be no less than 85% of the fair
market value on the date of grant.
In February 1997, the Board of Directors adopted a Non-Employee Directors'
Stock Option Plan (the "Directors' Plan"), under which 240,000 shares of the
Company's Common Stock were reserved for future issuance. The Company's
stockholders approved the adoption of the Directors' Plan in April 1997.
All options granted under the Directors' Plan expire no later than ten
years from the date of grant and vest and become fully exercisable after not
more than four years of continued service. Options generally vest monthly over
four years. The exercise price of each option must be equal to the fair market
value on the date of grant.
F-13
<PAGE> 79
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summaries stock option activity under the Stock and
Directors' Plans:
<TABLE>
<CAPTION>
WEIGHTED-
OPTIONS AVERAGE EXERCISE
OUTSTANDING PRICE
----------- ----------------
<S> <C> <C>
Granted..................................... 4,000 $ 0.09
-------
Balance at December 31,1996................... 4,000 $ 0.09
Granted..................................... 577,720 $ 1.28
Cancelled................................... (400) $ 0.75
-------
Balance at March 31, 1997 (unaudited)......... 581,320 $ 1.28
=======
</TABLE>
At December 31, 1996 and March 31, 1997, options to purchase no shares and
1,668 shares, respectively, of common stock were exercisable. The weighted
average exercise price of common stock exercisable was $1.50 per share at March
31, 1997. The weighted average remaining contractual life of the options
outstanding at December 31, 1996 and March 31, 1997 was 9.5 years and 9.8 years,
respectively.
At December 31, 1996, the Company had committed to grant options to
purchase 36,336 shares of common stock at an exercise price of $.38 per share,
representing the fair value of such shares as determined by the Board of
Directors on the date of grant.
During 1996, the Company issued 393,960 shares of restricted common stock
at prices ranging from $.09 to $.40 per share. Of the 393,960 shares issued,
353,960 shares were issued under the Plan and 52,800 shares were issued at
prices below fair value on the date of issuance. The weighted average fair value
of these issuances was $2.75 per share and the total fair value has been
included in deferred compensation as of December 31, 1996.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). In accordance with the provisions of SFAS 123, the Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25") and related Interpretations in accounting for its
employee stock options. Under APB 25, when the purchase price of restricted
stock or the exercise price of the Company's employee stock options equals or
exceeds the fair value of the underlying stock on the date of issuance or grant,
no compensation expense is recognized.
Pro forma information regarding net loss and loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value of these options was estimated at the date of grant using the minimum
value method with the following weighted average assumptions for 1996: risk-free
interest rate of 6.22%; no annual dividends; and an expected option life of five
years. The effect of applying the minimum value method of SFAS 123 to options
granted in 1996 did not result in pro forma net loss and loss per share amounts
that are materially different from amounts reported. Accordingly, such pro forma
information is not presented herein. Should the Company successfully complete an
initial public offering, it would no longer be able to utilize the minimum value
method and, therefore, the pro forma effect determined in 1996 may not be
representative of the pro forma effect to be reported in future years.
In February 1997, the Board of Directors adopted an Employee Stock Purchase
Plan which reserves 400,000 shares of common stock for issuance thereunder. The
Company's stockholders approved the adoption of the Employee Stock Purchase Plan
in April 1997.
F-14
<PAGE> 80
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
<S> <C> <C>
Conversion of Series A, B, C and D convertible preferred
stock................................................. 9,915,975 9,915,975
Warrants to purchase Series A convertible preferred
stock................................................. 54,320 54,320
Common stock and stock options under 1996 Stock Plan.... 446,040 1,568,728
Stock options under Directors' Plan..................... -- 240,000
Common stock under Employee Stock Purchase Plan......... -- 400,000
Other obligations....................................... 4,000 4,000
---------- ----------
10,420,335 12,183,023
========== ==========
</TABLE>
7. INCOME TAXES
At December 31, 1996, the Company had federal and California income tax net
operating loss carryforwards of approximately $3,210,000 and $3,286,000,
respectively. Federal and California tax loss carryforwards will begin to expire
in 2010 and 2003, respectively, unless previously utilized. The Company also had
federal and California research tax credit carryforwards of approximately
$165,000 and $89,000, respectively, which will begin to expire in 2010 unless
previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, use of these
net operating loss and credit carryforwards may be substantially limited because
of cumulative changes in the Company's ownership of more that 50%. However, the
Company does not believe such limitations will have a material impact upon the
utilization of these carryforwards.
Significant components of the Company's net deferred tax assets as of
December 31, 1995 and 1996 are shown below. A valuation allowance of $1,548,000
at December 31, 1996 has been recognized to offset the net deferred tax assets
as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
-------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 86,000 $ 1,321,000
Tax credit carryforwards................................ -- 223,000
Other................................................... -- 114,000
-------- -----------
Total deferred tax assets............................ 86,000 1,658,000
Deferred tax liability:
Depreciation............................................ -- (110,000)
-------- -----------
Net deferred tax assets................................... 86,000 1,548,000
Valuation allowance for deferred tax assets............... (86,000) (1,548,000)
-------- -----------
Net deferred taxes.............................. $ -- $ --
======== ===========
</TABLE>
8. 401(k) RETIREMENT SAVINGS PLAN
In January 1996, the Company adopted a 401(k) Retirement Savings Plan
covering substantially all employees who have completed certain service
requirements. Participants may contribute a portion of their compensation to the
Plan through payroll deductions. Company matching contributions, if any, are
determined by the Company at its sole discretion. To date, there have been no
Company contributions under the Plan.
F-15
<PAGE> 81
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COLLABORATIVE AGREEMENTS
The Company entered into the following collaborative agreements in 1996 and
1997:
Ultra High-throughput Screening System and Screen Development Agreements
The Company entered into collaborative agreements ("the Agreements") in
November and December 1996 with Bristol-Myers Squibb Pharmaceutical Research
Institute and Eli Lilly and Company, respectively (collectively, "the
Collaborators"), regarding the development and installation of the Company's
UHTS system at each of the Collaborators. Under the terms of the Agreements, the
Company is required to develop and separately install three components to be
integrated into one complete UHTS system. In return, the Collaborators are
obligated to make certain payments to the Company in the form of non-refundable
up-front fees, delivery or installation payments and ongoing research and
co-development funding. The Company is obligated to provide service and support
for the installed UHTS systems for a limited period of time.
The Company and the Collaborators will also co-develop high throughput
screening assays for use by the Collaborators. In addition to certain payments
to be made by the Collaborators for the use of these assays and assay
technologies, the Collaborators will also make certain milestone and royalty
payments to the Company if the Collaborators develop and commercialize any
compound identified using a screen based on the Company's fluorescent assay
technologies.
The Collaborators may terminate the agreement at any time without cause
upon written notice, provided that certain withdrawal payments are made. The
Agreements also provide for penalties payable by the Company if it fails to
deliver the completed UHTS system by a specified time.
Screen Development and Specialized Instrumentation Agreement
In December 1996, the Company and Roche Bioscience ("Roche") entered into a
Collaborative Research and License Agreement ("Roche Agreement") regarding the
development and delivery of a certain screening instrument by the Company. Roche
is obligated to make certain payments to the Company in the form of
non-refundable up-front fees and delivery payments. For a limited period of time
specified in the agreement, the Company is obligated to provide service and
support for any instrument delivered to Roche. The Company and Roche will also
co-develop a screening assay for use with a target identified in the Roche
Agreement. In connection with such development, Roche is obligated to make
certain payments to the Company in the form of non-refundable up-front fees and
ongoing research and co-development funding.
Screen Development Agreement, Functional Genomics, and Screening Services
Agreement
In April 1996, the Company and Sequana Therapeutics, Inc. ("Sequana")
entered into a Research Agreement (the "Sequana Agreement") regarding the
screening of certain targets to be selected by Sequana. Under the terms of the
Sequana Agreement, Sequana may require the Company to provide functional
analysis, assay development and screening for such targets, and Sequana would
then be obligated to make certain payments to the Company in the form of
non-refundable upfront fees, delivery payments and ongoing research funding.
Sequana will also be obligated to make certain milestone and royalty payments to
the Company if any pharmaceutical product is developed and commercialized as a
result of work performed by the Company pursuant to the agreement. Concurrent
with the execution of the agreement, Sequana purchased $1.5 million of the
Company's Series C preferred stock (Note 10).
In February 1997, the Company and Allelix Biopharmaceuticals, Inc.
("Allelix") entered into a collaborative agreement (the "Allelix Agreement")
regarding the development over a three-year period of screening assays for use
with targets identified by Allelix and agreed to by Aurora. Under the terms of
the Allelix Agreement, the Company is required to develop such screening assays
and to
F-16
<PAGE> 82
AURORA BIOSCIENCES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
perform screening services, and Allelix is obligated to make certain payments to
the Company in the form of up-front fees, development payments and fees for
screening services. Allelix is also required to make certain milestone and
royalty payments to Aurora in the event of development and commercialization of
a compound identified using a screen based on Aurora's fluorescent assay
technologies.
Screening Services Agreements
The Company has entered into collaborative agreements with ArQule, Inc. and
Alanex Corporation to screen compounds provided by these companies. Should the
Company detect activity in one or more of the compounds, the Company and the
collaborative partner under certain conditions may enter into negotiations to
establish a research collaboration agreement.
Strategic Technology Alliances
The Company has entered into strategic technology alliances with Packard
Instrument Company ("Packard"), Carl Creative Systems, Inc. and Universal
Technologies, Inc. to design, develop and implement certain instrumentation,
storage and retrieval systems and microfluidics. The alliances require the
Company to make certain payments for development work performed by these
companies (Note 5).
Pursuant to the agreement with Packard, Aurora receives certain payments
for development work it performs and Packard receives certain sublicense rights.
In addition, Packard purchased $1 million of the Company's Series B preferred
stock in May 1996 in connection with the collaboration.
10. RELATED PARTY TRANSACTIONS
During the period from May 8, 1995 (inception) to December 31, 1995 and the
year ended December 31, 1996, one of the Company's founding stockholders and an
affiliated venture fund loaned the Company $475,000 and $449,997, respectively.
The notes were converted into 556,387 shares of Series A preferred stock in
March 1996.
The general partner of the venture funds which made these loans was the
Company's Chairman of the Board and Acting Chief Executive Officer at the time
of these transactions. This individual and stockholder continues to serve on the
Company's Board of Directors and is also the President, Chief Executive Officer
and member of the Board of Directors of Sequana, a company which is both a
stockholder of and a party to a collaboration agreement with Aurora (see Note
9).
11. SUBSEQUENT EVENTS
Stockholders' Equity
In February 1997, the Board of Directors also authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the initial public offering is consummated under the terms presently
anticipated, all of the preferred stock outstanding at December 31, 1996 will
automatically convert into 9,915,975 shares of common stock. Unaudited pro forma
stockholders' equity, as adjusted for the assumed conversion of the preferred
stock, is set forth on the accompanying balance sheet.
On April 25, 1997, the Company effected a four-for-five reverse split of
its outstanding common stock. All share and per share amounts, including those
relating to preferred stock, in the accompanying financial statements have been
retroactively restated to reflect the reverse stock split.
F-17
<PAGE> 83
AURORA BIOSCIENCES CORPORATION
[COMPANY LOGO]
SELECTED FEATURES OF AURORA'S INTEGRATED TECHNOLOGY PLATFORM
FLUORESCENT ASSAY TECHNOLOGIES
POTENTIAL BENEFITS
- Applicable to most targets
- Cell-based and biochemical assays
- Faster assay development
- Functional genomics in mammalian cells
- Miniaturized assays
GREEN FLUORESCENT PROTEIN (GFP)
COMPUTER MODEL OF THREE DIMENSIONAL STRUCTURE
[DEPICTED IS A COMPUTER MODEL OF THE THREE DIMENSIONAL STRUCTURE OF GFP]
BETA-LACTAMASE CELL-BASED ASSAY
GREEN TO BLUE CHANGE IDENTIFIES HIT COMPOUND
[DEPICTED ARE PHOTOGRAPHS OF CELLS UNDERGOING A GREEN TO BLUE COLOR
CHANGE]
MINIATURIZATION TECHNOLOGIES
- Photograph of drops, one billionth of a liter, being dispensed through
the eye of a needle (Right)
- Assays in volumes of one millionth of a liter, in each well of the 3,456
well NanoPlate(TM) (Far Right)
MICROFLUIDICS
NANOPLATE(TM) [DEPICTED IS A PHOTOGRAPH OF FLUID DROPLETS PASSING THROUGH
THE EYE OF A NEEDLE, AND A NANOPLATE(TM)]
ADVANCED AUTOMATION
- Automated store designed to hold in excess of 1,000,000 compounds
- Expected throughput in excess of 100,000 compounds per day
AUTOMATED STORAGE AND RETRIEVAL SYSTEM
[DEPICTED IS AURORA'S AUTOMATED STORAGE AND RETRIEVAL SYSTEM]
<PAGE> 84
======================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION REPRESENTATION 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 ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Financial Data............... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 24
Management............................ 47
Certain Transactions.................. 55
Principal Stockholders................ 57
Description of Capital Stock.......... 58
Shares Eligible for Future Sale....... 60
Underwriting.......................... 62
Legal Matters......................... 63
Experts............................... 64
Additional Information................ 64
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS 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.
======================================================
======================================================
3,000,000 SHARES
(AURORA LOGO)
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
, 1997
======================================================
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the Common Stock being registered. All the amounts
shown are estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration fee............................................. $ 11,500
NASD filing fee.................................................. 4,300
Nasdaq Stock Market Listing Application fee...................... 50,000
Blue sky qualification fees and expenses......................... 10,000
Printing and engraving expenses.................................. 150,000
Legal fees and expenses.......................................... 250,000
Accounting fees and expenses..................................... 100,000
Transfer agent and registrar fees................................ 10,000
Miscellaneous.................................................... 14,200
--------
Total.................................................. $600,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its Directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act.
The Registrant's Restated Certificate of Incorporation and Amended and
Restated Bylaws include provisions to (i) eliminate the personal liability of
its directors for monetary damages resulting from breaches of their fiduciary
duty to the extent permitted by Section 102(b)(7) of the General Corporation Law
of Delaware (the "Delaware Law") and (ii) require the Registrant to indemnify
its Directors and officers to the fullest extent permitted by Section 145 of the
Delaware Law, including circumstances in which indemnification is otherwise
discretionary. Pursuant to Section 145 of the Delaware Law, a corporation
generally has the power to indemnify its present and former directors, officers,
employees and agents against expenses incurred by them in connection with any
suit to which they are or are threatened to be made, a party by reason of their
serving in such positions so long as they acted in good faith and in a manner
they reasonably believed to be in or not opposed to, the best interests of the
corporation and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The Registrant believes that these
provisions are necessary to attract and retain qualified persons as Directors
and officers. These provisions do not eliminate the Directors' duty of care,
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware Law. In
addition, each Director will continue to be subject to liability for breach of
the Director's duty of loyalty to the Registrant, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for acts or omissions that the Director believes to be contrary to the best
interests of the Registrant or its stockholders, for any transaction from which
the Director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the Director's duty to the Registrant or its
stockholders when the Director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the Director's duty to the Registrant or its stockholders, for improper
transactions between the Director and the Registrant and for improper
distributions to stockholders and loans to Directors and officers. The provision
also does not affect a Director's responsibilities under any other law, such as
the federal securities law or state or federal environmental laws.
II-1
<PAGE> 86
The Registrant has entered into indemnity agreements with each of its
Directors and executive officers that require the Registrant to indemnify such
persons against expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a Director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. The indemnification agreements also set
forth certain procedures that will apply in the event of a claim for
indemnification thereunder. The Registrant has entered into similar indemnity
agreements with certain of its key employees.
At present, there is no pending litigation or proceeding involving a
Director, officer or key employee of the Registrant as to which indemnification
is being sought nor is the Registrant aware of any threatened litigation that
may result in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and Directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception in May 1995, the Registrant has sold and issued the
following unregistered securities:
(a) From May 1995 to March 1996, Avalon Medical Partners, L.P. ("AMP") and
Avalon Bioventures II L.P. ("ABV") loaned the Registrant an aggregate of
$425,000 and $500,000, respectively, pursuant to Convertible Promissory Notes
issued by the Registrant to AMP and ABV. Such Convertible Promissory Notes were
canceled, and the interest thereon forgiven, in connection with the sale and
issuance of shares of Series A Preferred Stock to AMP and ABV in March 1996. The
Registrant issued such Convertible Promissory Notes in reliance on the exemption
provided by Section 4(2) of the Act.
(b) In connection with its reincorporation in Delaware in January 1996, the
Registrant issued 100 shares of Common Stock to AMP. The Registrant issued such
shares in reliance on the exemption provided by Section 4(2) of the Act.
(c) Subsequent to its reincorporation in Delaware and on various dates
through February 28, 1997, the Registrant sold an aggregate of 2,744,535 shares
of its Common Stock to 56 directors, officers, employees and consultants
pursuant to restricted stock purchase agreements. The purchase price for such
sales ranged from $.00125 to $1.50 per share. The Registrant issued such shares
of Common Stock in reliance upon the exemption provided by Rule 701 under the
Act.
(d) Subsequent to its reincorporation in Delaware and on various dates
through February 28, 1997, the Registrant issued incentive and nonstatutory
stock options to purchase an aggregate of 452,920 shares of Common Stock to 55
directors, officers, employees and consultants. The exercise price for such
options ranges from $.0875 to $1.50 per share. The Registrant issued such
options in reliance upon the exemption provided by Rule 701 under the Act.
(e) On March 8, 1996, the Registrant sold 8,191,282 shares of Series A
Preferred Stock at a price of $1.6625 per share to certain investors. On April
2, 1996, the Registrant sold 600,000 shares of Series C Preferred Stock at a
price of $2.50 per share to Sequana Therapeutics, Inc. On May 6, 1996, the
Registrant sold 666,665 shares of Series B Preferred Stock at a price of $2.25
per share to certain investors. Upon the closing of this offering, the shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
will automatically convert into 8,191,282, 600,000 and 666,665 shares of Common
Stock, respectively. The Registrant issued such shares of Preferred Stock in
reliance upon the exemption provided by Rule 506 promulgated under Regulation D
under the Act.
II-2
<PAGE> 87
(f) On August 13, 1996, the Registrant issued 28,000 shares of Common
Stock, valued at $3,500.00, to California Institute of Technology in connection
with the execution of a license agreement. The Registrant issued such shares of
Common Stock in reliance upon the exemption provided by Section 4(2) under the
Act.
(g) On December 20, 1996, the Registrant issued 160,000 shares of Common
Stock, valued at $60,000.00, to SIBIA Neurosciences, Inc. in connection with the
execution of a license agreement. The Registrant issued such shares of Common
Stock in reliance upon the exemption provided by Section 4(2) under the Act.
(h) On December 27, 1996, the Registrant sold 458,028 shares of Series D
Preferred Stock at a price of $4.50 per share to certain investors. Upon the
closing of this offering, the shares of Series D Preferred Stock will
automatically convert into 458,028 shares of Common Stock. The Registrant issued
such shares of Preferred Stock in reliance upon the exemption provided by Rule
506 promulgated under Regulation D under the Act.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1+ Restated Certificate of Incorporation.
3.2+ Amended and Restated Bylaws.
3.3 Certificate of Amendment of Restated Certificate of Incorporation.
3.4 Form of Restated Certificate of Incorporation, to be filed and become
effective upon completion of the offering.
3.5 Form of Restated Bylaws to become effective upon completion of the
offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Form of Common Stock Certificate.
4.3+ Amended and Restated Investors' Rights Agreement dated as of December 27,
1996 between the Registrant and the individuals and entities listed in
the signature pages thereto.
5.1+ Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement entered into between Registrant and its
directors and officers.
10.2+ Registrant's 1996 Stock Plan, as amended and restated (the "1996 Stock
Plan").
10.3+ Form of Incentive Stock Option Agreement under the 1996 Stock Plan.
10.4+ Form of Nonstatutory Stock Option Agreement under the 1996 Stock Plan.
10.5+ Form of Restricted Stock Purchase Agreement under the 1996 Stock Plan.
10.6+ Registrant's Employee Stock Purchase Plan and related offering document.
10.7+ Registrant's Non-Employee Directors' Stock Option Plan.
10.8+ Form of Nonstatutory Stock Option under Registrant's Non-Employee
Directors' Stock Option Plan.
10.9+ Employment Agreement dated January 23, 1996 between the Registrant and
Timothy J. Rink, as subsequently amended on March 8, 1996.
10.10+ Employment Agreement dated August 6, 1996 between the Registrant and J.
Gordon Foulkes.
</TABLE>
II-3
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -------------------------------------------------------------------------
<S> <C>
10.11+ Preferred Stock Purchase Agreement dated as of March 8, 1996 between the
Registrant and the individuals and entities listed in the signature pages
thereto.
10.12+ Series D Preferred Stock Purchase Agreement dated as of December 27, 1996
between the Registrant and the individual and entities listed in the
signature pages thereto.
10.13+ SubLease dated May 29, 1996 between the Registrant and Torrey Pines
Science Center Limited Partnership, as subsequently amended on August 31,
1996.
10.14+ Master Lease Agreement dated May 17, 1996 between the Registrant and
Lease Management Services Incorporated.
10.15+ Equipment Financing Agreement dated May 17, 1996 between the Registrant
and Lease Management Services Incorporated.
10.16+ Security Deposit Pledge Agreement dated May 17, 1996 between the
Registrant and Lease Management Services Incorporated.
10.17*+ Exclusive License Agreement for Fluorescent Assay Technologies dated June
17, 1996 between the Registrant and The Regents of the University of
California.
10.18*+ License Agreement dated August 2, 1996 between the Registrant and
California Institute of Technology.
10.19*+ License Agreement dated October 4, 1996 between the Registrant and the
State of Oregon, acting by and through the State Board of Higher
Education on behalf of the University of Oregon.
10.20*+ Research Agreement dated April 2, 1996 between the Registrant and Sequana
Therapeutics, Inc.
10.21*+ Collaboration and License Agreement effective as of April 24, 1996
between the Registrant and Packard Instrument Company, Inc.
10.22*+ Collaborative Research and License Agreement dated November 26, 1996
between the Registrant and Bristol-Myers Squibb Pharmaceutical Research
Institute.
10.23*+ Collaborative Research and License Agreement dated December 18, 1996
between the Registrant and Eli Lilly and Company.
10.24*+ Collaboration Agreement effective as of February 1, 1997 between the
Registrant and Allelix Biopharmaceuticals Inc.
10.25 Multi-Tenant Industrial Lease dated April 7, 1997 between the Registrant
and AEW/LBA Acquisition Co. II, LLC.
11.1 Computation of Net Loss per Share.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2+ Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3+ Consent of Fish & Richardson P.C.
24.1+ Power of Attorney. Reference is made to page II-6.
</TABLE>
- ---------------
* Confidential Treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
+ Previously filed.
(b) SCHEDULES.
All schedules are omitted because they are not required, are not applicable
or the information is included in the consolidated financial statements or notes
thereto.
II-4
<PAGE> 89
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 15 or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant 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 registrant 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 Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) 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.
(2) That, for purposes of determining any liability under the 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
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act of 1933, 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-5
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 1 to
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 30th day of April, 1997.
By: /s/ TIMOTHY J. RINK
------------------------------------
Timothy J. Rink
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<S> <C> <C>
/s/ TIMOTHY J. RINK Chairman of the Board, April 30, 1997
- --------------------------------------------- President and Chief Executive
Timothy J. Rink, M.A., M.D., Sc.D. Officer (Principal Executive
Officer)
* Senior Director of Finance April 30, 1997
- --------------------------------------------- and Administration
Deborah J. Tower (Principal Financial and
Accounting Officer)
* Director April 30, 1997
- ---------------------------------------------
J. Gordon Foulkes, Ph.D.
* Director April 30, 1997
- ---------------------------------------------
James C. Blair, Ph.D.
* Director April 30, 1997
- ---------------------------------------------
Kevin J. Kinsella
* Director April 30, 1997
- ---------------------------------------------
Hugh Y. Rienhoff, Jr., M.D.
* Director April 30, 1997
- ---------------------------------------------
Lubert Stryer
* Director April 30, 1997
- ---------------------------------------------
Timothy J. Wollaeger
* By: /s/ TIMOTHY J. RINK
- ---------------------------------------------
Timothy J. Rink, M.A., M.D., Sc.D.
Attorney-In-Fact
</TABLE>
II-6
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ --------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement. ...........................................
3.1+ Restated Certificate of Incorporation. ....................................
3.2+ Amended and Restated Bylaws. ..............................................
3.3 Certificate of Amendment of Restated Certificate of Incorporation. ........
3.4 Form of Restated Certificate of Incorporation, to be filed and become
effective upon completion of the offering. ................................
3.5 Form of Restated Bylaws to become effective upon completion of the
offering. .................................................................
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5. .................
4.2 Form of Common Stock Certificate. .........................................
4.3+ Amended and Restated Investors' Rights Agreement dated as of December 27,
1996 between the Registrant and the individuals and entities listed in the
signature pages thereto. ..................................................
5.1+ Opinion of Cooley Godward LLP. ............................................
10.1 Form of Indemnity Agreement entered into between Registrant and its
directors and officers. ...................................................
10.2+ Registrant's 1996 Stock Plan, as amended and restated (the "1996 Stock
Plan"). ...................................................................
10.3+ Form of Incentive Stock Option Agreement under the 1996 Stock Plan. .......
10.4+ Form of Nonstatutory Stock Option Agreement under the 1996 Stock Plan. ....
10.5+ Form of Restricted Stock Purchase Agreement under the 1996 Stock Plan. ....
10.6+ Registrant's Employee Stock Purchase Plan and related offering
document. .................................................................
10.7+ Registrant's Non-Employee Directors' Stock Option Plan. ...................
10.8+ Form of Nonstatutory Stock Option under Registrant's Non-Employee
Directors' Stock Option Plan. .............................................
10.9+ Employment Agreement dated January 23, 1996 between the Registrant and
Timothy J. Rink, as subsequently amended on March 8, 1996. ................
10.10+ Employment Agreement dated August 6, 1996 between the Registrant and J.
Gordon Foulkes. ...........................................................
10.11+ Preferred Stock Purchase Agreement dated as of March 8, 1996 between the
Registrant and the individuals and entities listed in the signature pages
thereto. ..................................................................
10.12+ Series D Preferred Stock Purchase Agreement dated as of December 27, 1996
between the Registrant and the individual and entities listed in the
signature pages thereto. ..................................................
10.13+ SubLease dated May 29, 1996 between the Registrant and Torrey Pines Science
Center Limited Partnership, as subsequently amended on August 31, 1996. ...
10.14+ Master Lease Agreement dated May 17, 1996 between the Registrant and Lease
Management Services Incorporated. .........................................
10.15+ Equipment Financing Agreement dated May 17, 1996 between the Registrant and
Lease Management Services Incorporated. ...................................
10.16+ Security Deposit Pledge Agreement dated May 17, 1996 between the Registrant
and Lease Management Services Incorporated. ...............................
10.17*+ Exclusive License Agreement for Fluorescent Assay Technologies dated June
17, 1996 between the Registrant and The Regents of the University of
California. ...............................................................
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ --------------------------------------------------------------------------- ----
<C> <S> <C>
10.18*+ License Agreement dated August 2, 1996 between the Registrant and
California Institute of Technology. .......................................
10.19*+ License Agreement dated October 4, 1996 between the Registrant and the
State of Oregon, acting by and through the State Board of Higher Education
on behalf of the University of Oregon. ....................................
10.20*+ Research Agreement dated April 2, 1996 between the Registrant and Sequana
Therapeutics, Inc. ........................................................
10.21*+ Collaboration and License Agreement effective as of April 24, 1996 between
the Registrant and Packard Instrument Company, Inc. .......................
10.22*+ Collaborative Research and License Agreement dated November 26, 1996
between the Registrant and Bristol-Myers Squibb Pharmaceutical Research
Institute. ................................................................
10.23*+ Collaborative Research and License Agreement dated December 18, 1996
between the Registrant and Eli Lilly and Company. .........................
10.24*+ Collaboration Agreement effective as of February 1, 1997 between the
Registrant and Allelix Biopharmaceuticals Inc. ............................
10.25 Multi-Tenant Industrial Lease dated April 7, 1997 between the Registrant
and AEW/LBA Acquisition Co. II, LLC.
11.1 Computation of Net Loss per Share. ........................................
23.1 Consent of Ernst & Young LLP, Independent Auditors. .......................
23.2+ Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1. ..........
23.3+ Consent of Fish & Richardson P.C. .........................................
24.1+ Power of Attorney. Reference is made to page II-6. ........................
</TABLE>
- ---------------
* Confidential Treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
3,000,000 Shares
Aurora Biosciences Corporation
Common Stock
($.001 Par Value)
UNDERWRITING AGREEMENT
_______________, 1997
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
Robertson, Stephens & Company
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Aurora Biosciences Corporation, a Delaware corporation (the
"Company"), proposes to sell to the several underwriters (the "Underwriters")
named in Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of 3,000,000 shares of the Company's Common
Stock, $.001 par value (the "Firm Shares"). The respective amounts of the Firm
Shares to be so purchased by the several Underwriters are set forth opposite
their names in Schedule I hereto. The Company also proposes to sell at the
Underwriters' option an aggregate of up to 450,000 additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option
Shares if you elect to exercise the over- allotment option in whole or in part
for the
<PAGE> 2
accounts of the several Underwriters. The Firm Shares and the Option Shares
(to the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Underwriters as follows:
(a) A registration statement on Form S-1 (File No.
333-23407) with respect to the Shares has been carefully prepared by
the Company in conformity with the requirements of the Securities Act
of 1933, as amended (the "Act"), and the Rules and Regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder and has been filed with the Commission.
Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the
Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have
heretofore been delivered by the Company to you. Such registration
statement, together with any registration statement filed by the
Company pursuant to Rule 462(b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained
in the Prospectus referred to below, has become effective under the
Act and no post-effective amendment to the Registration Statement has
been filed as of the date of this Agreement. "Prospectus" means (i)
the form of prospectus first filed with the Commission pursuant to
Rule 424(b) or (ii) the last preliminary prospectus included in the
Registration Statement filed prior to the time it becomes effective or
filed pursuant to Rule 424(a) under the Act that is delivered by the
Company to the Underwriters for delivery to purchasers of the Shares,
together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each
preliminary prospectus included in the Registration Statement prior to
the time it becomes effective is herein referred to as a "Preliminary
Prospectus."
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. There are no subsidiaries, direct or indirect, of the
Company. The Company is duly qualified to transact business in all
jurisdictions in which the conduct of its business requires such
qualification.
(c) The outstanding shares of Common Stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; the Shares to be issued and sold by the Company have
been duly authorized and when issued and paid for
2
<PAGE> 3
as contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither
the filing of the Registration Statement nor the offering or sale of
the Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating
to the registration of any shares of Common Stock.
(d) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct in all material
respects. All of the Shares conform to the description thereof
contained in the Registration Statement. The form of certificates
for the Shares conforms to the corporate law of the jurisdiction of
the Company's incorporation.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering
of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments
or supplements thereto will contain, all statements which are required
to be stated therein by, and will conform, to the requirements of the
Act and the Rules and Regulations. The Registration Statement and any
amendment thereto do not contain, and will not contain, any untrue
statement of a material fact and do not omit, and will not omit, to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any
amendments and supplements thereto do not contain, and will not
contain, any untrue statement of material fact; and do not omit, and
will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the
Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any
Underwriter through the Representatives, specifically for use in the
preparation thereof.
(f) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration
Statement, present fairly the financial position and the results of
operations and cash flows of the Company, at the indicated dates and
for the indicated periods. Such financial statements and related
schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of
results for such periods have been made. The summary and selected
financial information included in the Registration Statement presents
fairly the information shown therein and such information has been
compiled on a basis consistent with the financial statements presented
therein and the books and records of the Company.
3
<PAGE> 4
(g) Ernst & Young, LLP, who have certified certain of the
financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required
by the Act and the Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending
or, to the knowledge of the Company, threatened against the Company
before any court or administrative agency or otherwise which if
determined adversely to the Company might result in any material
adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or
prospects of the Company or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the
Registration Statement.
(i) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described,
subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except those reflected in such financial statements (or as
described in the Registration Statement) or which are not material in
amount. The Company occupies its leased properties under valid and
binding leases.
(j) The Company has filed all Federal, State, local and
foreign income tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments
received by them or any of them to the extent that such taxes have
become due. All tax liabilities have been adequately provided for in
the financial statements of the Company.
(k) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development involving a prospective material adverse change in or
materially and adversely affecting the earnings, business,
management, properties, assets, rights, operations, condition
(financial or otherwise), or prospects of the Company, whether or not
occurring in the ordinary course of business, and there has not been
any material transaction entered into or any material transaction that
is probable of being entered into by the Company, other than
transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be
amended or supplemented. For purposes of the foregoing, entering into
and performing under agreements with syndicate members relating to the
Company's ultra-high throughput screening system shall be deemed
transactions in the ordinary course of business. The Company has no
material contingent obligations which are not disclosed in the
Company's financial statements which are included in the Registration
Statement.
(l) The Company is not, with or without the giving of notice
or lapse of time or both, in violation of or in default under its
Certificate of Incorporation ("Charter") or By-
4
<PAGE> 5
Laws or under any agreement, lease, contract, indenture or other
instrument or obligation to which it is a party or by which it, or any
of its properties, is bound and which default is of material
significance in respect of the condition, financial or otherwise of
the Company or the business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and the
fulfillment of the terms hereof will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is a party, or of the Charter or
by-laws of the Company or any order, rule or regulation applicable to
the Company of any court or of any regulatory body or administrative
agency or other governmental body having jurisdiction, except any such
conflict, breach or default which would not have a material adverse
effect on the Company's business, management, properties, assets,
rights, operations, conditions (financial or otherwise) or prospects
of the Company (a "Material Adverse Effect").
(m) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public
offering by the Underwriters under state securities or Blue Sky laws)
has been obtained or made and is in full force and effect.
(n) The Company holds all material licenses, certificates
and permits from governmental authorities which are necessary to the
conduct of its business; the Company owns or possesses the right to
use all patents, patent rights, trademarks, trade names, service
marks, service names, copyrights, license rights, know how (including
trade secrets and other unpatented and unprotected proprietary or
confidential information, systems or procedures) and other
intellectual property rights necessary to carry on its business in all
material respects; and the Company has not infringed, and the Company
has not received notice of conflict with, any patents, patent rights,
trade names, trademarks or copyrights, which infringement or conflict
is material to the business of the Company. The Company knows of no
material infringement by others of patents, patent rights, trade
names, trademarks or copyrights owned by or licensed to the Company.
(o) Neither the Company nor, to the Company's best
knowledge, any of its affiliates, has taken or may take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common
Stock to facilitate the sale or resale of the Shares.
5
<PAGE> 6
(p) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations of the
Commission thereunder.
(q) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(r) The Company carries, or is covered by, insurance in such
amounts and covering such risks as it believes is adequate for the
conduct of its business and the value of its properties and as is
customary for companies engaged in similar businesses.
(s) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(t) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida,
Chapter 92-198, An Act Relating to Disclosure of doing Business with
Cuba, and the Company further agrees that if it commences engaging in
business with the government of Cuba or with any person or affiliate
located in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or with the Florida
Department of Banking and Finance (the "Department"), whichever date
is later, or if the information reported in the Prospectus, if any,
concerning the Company's business with Cuba or with any person or
affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
6
<PAGE> 7
(u) To the best of the Company's knowledge, no relationship,
direct or indirect, exists between or among the Company, on the one
hand, and the directors, officers, stockholders, customers or
suppliers of the Company, on the other hand, which is required to be
described in the Prospectus that is not so described.
(v) Neither the Company nor to the best of the Company's
knowledge, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company, has used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expense relating to political activity; made any direct
or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in violation
of any provision of the Foreign Corrupt Practices Act of 1972; or made
any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(w) Prior to the Closing Date, the Shares will be authorized
for listing by The Nasdaq National Market upon official notice of
issuance.
(x) The Company has not been advised, and has no reason to
believe, that it is not conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which
it is conducting business, except where failure to be so in compliance
would not have a Material Adverse Effect.
(y) The business, operations and facilities of the Company
have been and are being conducted in compliance with all applicable
laws, ordinances, rules, regulations, licenses, permits, approvals,
plans, authorizations or requirements relating to occupational safety
and health, pollution, protection of health or the environment
(including, without limitation, those relating to emissions,
discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic substances, materials or wastes
into ambient air, surface water, groundwater or land, or relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of chemical substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes,
whether solid, gaseous or liquid in nature) or otherwise relating to
remediating real property in which the Company has or had any
interest, whether owned or leased, of any governmental department,
commission, board, bureau, agency or instrumentality of the United
States, any state or political subdivision thereof and all applicable
judicial or administrative agency or regulatory decrees, awards,
judgments and orders relating thereto, except for such failures to so
comply as would not, individually or in the aggregate, have a Material
Adverse Effect; and the Company has not received any notice from a
governmental instrumentality or any third party alleging any violation
thereof or liability thereunder (including, without limitation,
liability for costs of investigating or remediating sites containing
hazardous substances or damage to
7
<PAGE> 8
natural resources), except for such violations or liabilities which
would not, individually or in the aggregate, have a Material Adverse
Effect.
(z) Each of the collaborations, licenses and other
agreements referred to in the Registration Statement to which the
Company is a party (the "Agreements") is a valid and binding
obligation of the parties, in full force and effect, and enforceable
against the parties in accordance with its terms, except as any rights
to indemnify may be limited by applicable laws and except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws
affecting creditors' rights and subject to general equity principles
and limitations on the availability of equitable relief, including
specific performance. There are no existing defaults of the Company
or of any other party to the Agreements, and, to the best of the
Company's knowledge, no event, condition or occurrence exists that
(whether with or without notice, lapse of time, the declaration of
default or other similar event) would constitute a default by a party
to the Agreements. The Company has no reason to believe that any
party to the Agreements intends to terminate the applicable Agreement.
(aa) No holder of any securities of the Company or any other
person has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of,
any of the Shares or the right to have any Common Shares or other
securities of the Company included in the Registration Statement or
the right, as a result of the filing of the Registration Statement, to
require registration under the Act of any shares of Common Stock or
other securities of the Company.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set
forth, the Company agrees to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a price
of $_____ per share, the number of Firm Shares set forth opposite the
name of each Underwriter in Schedule I hereof, subject to adjustments
in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to
be made in New York Clearing House funds by certified or bank
cashier's checks drawn to the order of the Company against delivery of
certificates therefor to the Representatives for the several accounts
of the Underwriters. Such payment and delivery are to be made at the
offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street,
Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the third
business day after the date of this Agreement or at such other time
and date not later than five business days thereafter as you and the
Company shall agree upon, such time and date being herein referred to
as the "Closing Date." (As used herein, "business day" means a day on
which the New York Stock
8
<PAGE> 9
Exchange is open for trading and on which banks in New York are open
for business and are not permitted by law or executive order to be
closed.) The certificates for the Firm Shares will be delivered in
such denominations and in such registrations as the Representatives
request in writing not later than the second full business day prior
to the Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase the Option Shares at the price per share as
set forth in the first paragraph of this Section 2. The option
granted hereby may be exercised in whole or in part by giving written
notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting
forth the number of Option Shares as to which the several Underwriters
are exercising the option, the names and denominations in which the
Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined
by the Representatives but shall not be earlier than three nor later
than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein
referred to as the "Option Closing Date"). If the date of exercise of
the option is three or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date.
The number of Option Shares to be purchased by each Underwriter shall
be in the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such
Underwriter bears to 3,000,000, adjusted by you in such manner as to
avoid fractional shares. The option with respect to the Option Shares
granted hereunder may be exercised only to cover over-allotments in
the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at
any time prior to its expiration by giving written notice of such
cancellation to the Company. To the extent, if any, that the option
is exercised, payment for the Option Shares shall be made on the
Option Closing Date in New York Clearing House funds by certified or
bank cashier's check drawn to the order of the Company against
delivery of certificates therefor at the offices of Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem
it advisable to do so. The Firm Shares are to be initially offered to
the public at the initial public offering price set forth in the
Prospectus. The Representatives may from time to time thereafter
change the public offering price and other selling terms. To the
extent, if at all, that any Option Shares are
9
<PAGE> 10
purchased pursuant to Section 2 hereof, the Underwriters will offer
them to the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the
Shares in accordance with a Master Agreement Among Underwriters
entered into by you and the several other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters
that:
(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in
Rule 430A of the Rules and Regulations is followed, to prepare and
timely file with the Commission under Rule 424(b) of the Rules and
Regulations a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness
of the Registration Statement in reliance on Rule 430A of the Rules
and Regulations, and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives
shall not previously have been advised and furnished with a copy or to
which the Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (i)
when the Registration Statement or any post-effective amendment
thereto shall have become effective, (ii) of receipt of any comments
from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information, and (iv) of the issuance
by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the use of the Prospectus or of the
institution of any proceedings for that purpose. The Company will use
its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as
soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws
of such U.S. and foreign jurisdictions as the Representatives may
reasonably have requested and will make such applications, file such
documents, and furnish such information as may be reasonably required
for that purpose, provided the Company shall not be required to
qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports, and other
documents, as are or may be required to continue such qualifications
in effect for so long a period as the Representatives may reasonably
request for distribution of the Shares.
10
<PAGE> 11
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as
many copies of the Prospectus in final form, or as thereafter amended
or supplemented, as the Representatives may reasonably request. The
Company will deliver to the Representatives at or before the Closing
Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will
deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the
exhibits filed therewith that may reasonably be requested), and of all
amendments thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so
as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in
the judgment of the Company or in the reasonable opinion of the
Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of
the circumstances existing at the time the Prospectus is delivered to
a purchaser, not misleading, or, if it is necessary at any time to
amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will
not, in the light of the circumstances when it is so delivered, be
misleading, or so that the Prospectus will comply with the law.
(f) The Company will make generally available to its
security holders, as soon as it is practicable to do so, but in any
event not later than 15 months after the effective date of the
Registration Statement, an earning statement (which need not be
audited) in reasonable detail, covering a period of at least 12
consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has
been so made available.
(g) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports
and copies of all other documents, reports and information furnished
by the Company to its stockholders or filed with any securities
exchange pursuant to the requirements of such exchange or with the
Commission pursuant to the Act or the Securities Exchange Act of 1934,
as amended. The Company will deliver to the Representatives similar
reports with respect to significant subsidiaries,
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as that term is defined in the Rules and Regulations, which are not
consolidated in the Company's financial statements.
(h) No offering, sale, short sale or other disposition of
any shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of Common
Stock or derivative of Common Stock (or agreement for such) will be
made by the Company for a period of 180 days after the date of this
Agreement, directly or indirectly, otherwise than (i) hereunder, (ii)
pursuant to options outstanding as of the date hereof under the
Company's 1996 Stock Plan, Non-Employee Director Stock Option Plan and
any Warrants described in the Registration Statement, (iii) stock
issued pursuant to the Employee Stock Purchase Plan or pursuant to the
Founders Pool, (iv) up to an aggregate of 2,000,000 shares of Common
Stock in connection with corporate collaborations, strategic alliances
or technology licensing transactions and acquisitions of third party
companies or businesses, or the technologies or assets thereof,
whether by way of acquisition of stock or assets, merger or otherwise;
provided that the party acquiring such shares pursuant to this clause
(iv) shall agree not to sell such shares for a period of 180 days
after the date of this Agreement without the prior written consent of
Alex. Brown & Sons Incorporated.
(i) The Company will use its best efforts to list, subject
to notice of issuance, the Shares on the Nasdaq National Market.
(j) The Company has caused each officer and director and
each stockholder beneficially holding 10,000 or more shares of Common
Stock of the Company (including options which will be vested within
180 days after the date hereof) to furnish to you, on or prior to the
date of this agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such person
shall agree not to, directly or indirectly, offer, sell, pledge,
contract to sell (including any short sale), grant any option to
purchase or otherwise dispose of any shares of Common Stock of the
Company (including, without limitation, shares of Common Stock of the
Company which may be deemed to be beneficially owned by such person in
accordance with the rules and regulations of the Commission, shares of
Common Stock which may be issued upon exercise of a stock option or
warrant, or shares convertible into or derivative of Common Stock) or
enter into any hedging transaction relating to the Common Stock for a
period of 180 days after the date of this Agreement, except with the
prior written consent of Alex. Brown & Sons Incorporated ("Lockup
Agreements"). Notwithstanding the foregoing, such person may transfer
any or all shares by (i) gift or other transfer for no consideration,
(ii) will or intestacy or (iii) if such person is a partnership, by a
distribution to its partners.
(k) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall file such reports
with the Commission with respect to the
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<PAGE> 13
sale of the Shares and the application of the proceeds therefrom as
may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company or any of the Subsidiaries to
register as an investment company under the 1940 Act.
(m) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Company's Common Stock.
(n) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Company under this
Agreement, including, without limiting the generality of the
foregoing, the following: accounting fees of the Company; the fees
and disbursements of counsel for the Company; the cost of printing and
delivering to, or as requested by, the Underwriters copies of the
Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Invitation Letter, the Listing
Application, the Blue Sky Survey and any supplements or amendments
thereto; the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements of counsel to the
Underwriters) incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of
the sale of the Shares; Nasdaq National Market fees; and the expenses,
including the fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the Shares under
securities or Blue Sky laws of those U.S. and foreign jurisdictions
requested by the Representatives pursuant to Section 4(c). The
Company agrees to pay all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters,
incident to the offer and sale of any directed shares of the Common
Stock by the Underwriters to employees and persons having business
relationships with the Company and its Subsidiaries. The Company
shall not, however, be required to pay for any of the Underwriters
expenses (other than those related to qualification under NASD
regulation and securities or Blue Sky laws of U.S. and foreign
jurisdictions requested by the Representatives pursuant to Section
4(c)) except that, if this Agreement shall not be consummated because
the conditions in Section 6 hereof are not satisfied, or because this
Agreement is terminated by the Representatives pursuant to Section 11
hereof, or by reason of any failure, refusal or inability on the part
of the Company to perform any undertaking or satisfy any condition of
this Agreement or to comply with any of the terms hereof on its part
to be performed,
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<PAGE> 14
unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable
out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and
proposing to market the Shares or in contemplation of performing their
obligations hereunder; but the Company shall not in any event be
liable to any of the several Underwriters for damages on account of
loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the
Option Closing Date are subject to the accuracy, as of the Closing
Date or the Option Closing Date, as the case may be, of the
representations and warranties of the Company contained herein, and to
the performance by the Company of its covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional
information (to be included in the Registration Statement or
otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order
suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company,
shall be contemplated by the Commission and no injunction, restraining
order, or order of any nature by a Federal or state court of competent
jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of
Cooley Godward LLP, counsel for the Company, dated the Closing Date or
the Option Closing Date, as the case may be, addressed to the
Underwriters to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with corporate power and
authority to own or lease its properties and conduct its
business as described in the Registration Statement; to the
best of such counsel's knowledge, the Company is duly
qualified to transact business in all jurisdictions in which
the conduct of its business requires such qualification and in
which the failure to qualify would have a materially adverse
effect upon the business of the Company taken as a whole.
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<PAGE> 15
(ii) The Company has authorized and outstanding
capital stock as set forth in the Prospectus; the authorized
shares of the Company's Common Stock have been duly
authorized; the outstanding shares of the Company's Common
Stock have been duly authorized and validly issued and are
fully paid and non-assessable; all of the Shares conform to
the description thereof contained in the Prospectus; the
certificates for the Shares, assuming they are in the form
filed with the Commission, are in due and proper form; the
shares of Common Stock, including the Option Shares, if any,
to be sold by the Company pursuant to this Agreement have been
duly authorized and will be validly issued, fully paid and
non-assessable when issued and paid for as contemplated by
this Agreement; and no preemptive rights of stockholders exist
with respect to any of the Shares or the issue or sale
thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and
there are no outstanding or authorized options, warrants or
rights of any character obligating the Company to issue any
shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of such stock; and except as
described in the Prospectus, to the knowledge of such counsel,
no holder of any securities of the Company or any other person
has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell
or otherwise issue to them, or to permit them to underwrite
the sale of, any of the Shares or the right to have any Common
Shares or other securities of the Company included in the
Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under
the Act of any shares of Common Stock or other securities of
the Company.
(iv) The Registration Statement has become
effective under the Act and, to the best of the knowledge of
such counsel, no stop order proceedings with respect thereto
have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus
and each amendment or supplement thereto comply as to form in
all material respects with the requirements of the Act and the
applicable rules and regulations thereunder (except that such
counsel need express no opinion as to the financial statements
and schedules, related notes and other financial and
statistical information included therein).
(vi) The statements under the captions
"____________," "___________," "Description of Capital Stock"
and "Shares Eligible for Future Sale" in the Prospectus,
insofar as such statements constitute a summary of
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<PAGE> 16
matters of law, fairly summarize in all material respects the
information called for with respect to such matters.
(vii) Such counsel does not know of any contracts
or documents required to be filed as exhibits to the
Registration Statement or described in the Registration
Statement or the Prospectus which are not so filed or
described as required, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are
fairly summarized in all material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the
Company.
(ix) The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
do not and will not conflict with or result in a breach of any
of the terms or provisions of, or constitute a default under,
the Charter or By-Laws of the Company, or any material
agreement or instrument known to such counsel to which the
Company is a party or by which the Company may be bound.
(x) This Agreement has been duly authorized,
executed and delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by
securities and Blue Sky laws of the various states and other
jurisdictions as to which such counsel need express no
opinion) except such as have been obtained or made, specifying
the same.
In rendering such opinion Cooley Godward LLP may rely as to
matters governed by the laws of states other than California, the
General Corporations Law of Delaware ("DGCL") or Federal laws on local
counsel in such jurisdictions, provided that in each case Cooley
Godward LLP shall state that they believe that they and the
Underwriters are justified in relying on such other counsel. In
addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the
Registration Statement, at the time it became effective under the Act
(but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date
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<PAGE> 17
or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no
view as to financial statements, schedules, related notes and other
financial and statistical information therein). With respect to such
statement, Cooley Godward LLP may state that their belief is based
upon the procedures set forth therein, but is without independent
check and verification.
It is understood that such opinion shall contain such
qualifications and limitations as are customary for similar opinions
rendered in similar transactions.
(c) The Representatives shall have received from Morrison &
Foerster LLP, counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be,
substantially to the effect specified in subparagraphs (ii), (iv) and
(ix) of Paragraph (b) of this Section 6, and that the Company is a
duly organized and validly existing corporation under the laws of the
State of Delaware. In rendering such opinion Morrison & Foerster LLP
may rely as to all matters governed other than by the laws of the
State of California, the DGCL or Federal laws on the opinion of
counsel referred to in Paragraph (b) of this Section 6. In addition
to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the
Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or
omitted to state a material fact, necessary in order to make the
statements therein, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no
view as to financial statements, schedules and statistical information
therein). With respect to such statement, Morrison & Foerster LLP may
state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(d) The Representatives shall have received at or prior to
the Closing Date from Morrison & Foerster LLP a memorandum or summary,
in form and substance satisfactory to the Representatives, with
respect to the qualification for offering and sale by the Underwriters
of the Shares under the securities or Blue Sky laws of such
jurisdictions as the Representatives may reasonably have requested.
(e) You shall have received, on each of the date hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter
dated the date hereof, the Closing
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<PAGE> 18
Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to you, of Ernst & Young LLP confirming that
they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements and schedules
examined by them and included in the Registration Statement comply in
form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations; and containing such other statements and information as
is ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration
Statement and Prospectus.
(f) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Senior Director of
Finance and Administration of the Company executed on behalf of the
Company to the effect that, as of the Closing Date or the Option
Closing Date, as the case may be, each of them severally represents to
the best of his or her knowledge as follows:
(i) The Registration Statement has become
effective under the Act and no stop order suspending the
effectiveness of the Registration Statement has been issued,
and no proceedings for such purpose have been taken or are, to
his or her knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as
of the Closing Date or the Option Closing Date, as the case
may be;
(iii) All filings required to have been made
pursuant to Rules 424 or 430A under the Act have been made;
(iv) He or she has carefully examined the
Registration Statement and the Prospectus and, in his or her
opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration
Statement were true and correct, and such Registration
Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make
the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred
which is required under the Act to be set forth in a
supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been any material adverse change or
any development involving a prospective material adverse
change in or
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materially and adversely affecting the condition, financial or
otherwise, of the Company or the earnings, business,
management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company, whether
or not arising in the ordinary course of business.
(g) The Company shall have furnished to the Representatives
such further certificates and documents confirming the representations
and warranties, covenants and conditions contained herein and related
matters as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, shall have
been approved for listing upon notice of issuance on the Nasdaq
National Market.
(i) The Lockup Agreements described in Section 4 (j) shall
have been executed and delivered to the Representatives and shall be
in full force and effect.
(j) Fish & Richardson shall have furnished to the
Representatives their written opinion on the Closing Date or the
Option Closing Date, as the case may be, as patent counsel to the
Company, addressed to the Underwriters and dated such Closing Date or
Option Closing Date, as the case may be, in form and substance
satisfactory to the Representatives, to the effect that:
(i) The Company has received from or filed with
the Patent and Trademark Office the patents and patent
applications set forth in a schedule to such opinion
(hereafter called "the Company's patents" and "the Company's
patent applications," respectively). Such counsel knows of no
claims of third parties to any ownership interest or lien with
respect to any of such patents or patent applications.
(ii) The statements in the Prospectus under the
caption "Risk Factors Dependence on Patents and Propriety
Rights" and "Business -- Patents and Proprietary Rights" (the
"Intellectual Property Portion"), to such counsel's knowledge,
insofar as such statements constitute a summary of the
Company's patents and patent applications are in all material
respects accurate summaries and fairly summarize in all
material respects the legal matters, documents and proceedings
relating to the Company's patents and the Company's patent
applications. To such counsel's knowledge, the Company owns
not less than _____ issued U.S. patents, ______ issued
foreign patents, and ______ pending patent applications.
(iii) Such counsel is not aware that any of the
Company's patents is invalid or unenforceable or that any of
the Company's patent applications will issue with invalid or
unenforceable claims.
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<PAGE> 20
(iv) Such counsel is not aware of any valid patent
held by others that such counsel believes is infringed by the
activities of the Company.
(v) Such counsel is not aware of any material
defects or errors in the preparation, filing or prosecution of
the Company's patents and the Company's patent applications.
The Company's patents and the Company's patent applications
have been diligently pursued by the Company.
(vi) Such counsel knows of no pending or
threatened action, suit, proceeding or claim by others that
the Company is infringing or otherwise violating any patents,
trademarks or trade secrets except as described in the
Registration Statement.
(vii) Such counsel is not aware of any pending or
threatened action, suit, proceeding, or claim by others
challenging the validity or scope of the patent applications
or the patents held by or licensed to the Company except as
described in the Registration Statement.
Such counsel shall also state that it has since June 1996
represented the Company in the prosecution of its patents and has
participated in conferences with employees of the Company at which the
Company's patents and the Company's patent applications were discussed
and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement (except to the
extent stated in subparagraph (ii)), on the basis of such conferences
and such representation of the Company, nothing has come to the
attention of such counsel which leads them to believe that the
Intellectual Property Portion of the Registration Statement, as of the
time the Registration Statement became effective under the Act, and
such portion of the Prospectus or any amendment or supplement thereto,
on the date such Prospectus, amendment or supplement thereto was filed
pursuant to Rule 424(b), and such portion of the Registration
Statement and the Prospectus, or any amendment or supplement thereto,
as of the Closing Date or the Option Closing Date, as the case may be,
contains 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. Fish & Richardson may state that
their belief is based upon such conferences and such representation,
but is without independent check and verification.
(k) At the time of execution of this Agreement, the
Representatives shall have received from Ernst & Young LLP a letter
stating that their review of the Company's internal accounting
controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's financial statements as of
December 31,
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1996, did not disclose any weakness in internal controls that they
considered to be material weaknesses.
(l) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Secretary of the Company to the effect that, as of
the Closing Date or the Option Closing Date, as the case may be, the
Secretary certifies as to the accuracy of the Company's Charter and
Bylaws, the resolutions of the Board of Directors relating to the
offering contemplated hereby, the form of stock certificate
representing the Shares, and copies of all communications with the
Commission; as to the execution and delivery of this Agreement; as to
the incumbency and signature of persons signing this Agreement, the
Registration Statement and other related documents; as to the approval
of the Shares for listing on the Nasdaq National Market; as to the
Company's compliance with all agreements and performance or
satisfaction of all conditions required hereunder; as to the
consideration received for all outstanding shares of the Company's
Common Stock; and as to such other matters as Underwriters' counsel
may reasonably request.
(m) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Company's transfer agent certifying such matters
as Underwriters' counsel may reasonably request.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if
they are in all material respects satisfactory to the Representatives
and to Morrison & Foerster LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this
Agreement to be fulfilled, the obligations of the Underwriters
hereunder may be terminated by the Representatives notifying the
Company of such termination in writing or by telegram at or prior to
the Closing Date or the Option Closing Date, as the case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in
Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the Shares
required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option
Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
in effect or proceedings therefor initiated or threatened.
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8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities to which such Underwriter or any such controlling person
may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
(iii) any act or failure to act or any alleged act or failure to act
by any Underwriter in connection with, or relating in any manner to,
the Shares or the offering contemplated hereby, and which is included
as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon matters covered by clause (i) or
(ii) above, provided that the Company shall not be liable under this
clause (iii) to the extent that it is determined in a final judgment
by a court of competent jurisdiction that such loss, claim, damage,
liability or action relates to or arose directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter
through its negligence or willful misconduct; and will reimburse each
Underwriter and each such controlling person upon demand for any legal
or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any
such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not such Underwriter or controlling
person is a party to any action or proceeding; provided, however, that
the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to
the Company by or through the Representatives specifically for use in
the preparation thereof. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will
indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the Registration Statement and each
person, if any, who controls the Company within the meaning of the
Act, against any losses, claims, damages or liabilities to which the
Company or any such director, officer, or controlling person may
become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission
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or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, or controlling
person in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding; provided, however,
that each Underwriter will be liable in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person
(the "indemnified party") shall promptly notify the person against
whom such indemnity may be sought (the "indemnifying party") in
writing. No indemnification provided for in Section 8(a) or (b) shall
be available to any party who shall fail to give notice as provided in
this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and
was materially prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the indemnifying party
or parties from any liability which it or they may have to the
indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall
be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In
any such proceeding, any indemnified party shall have the right to
retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30
days of presentation) the fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed expressly in writing to
the retention of such counsel and the payment of such fees and
expenses, (ii) the named parties to any such proceeding (including
any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between them or (iii) the indemnifying party shall have
failed to assume the defense and employ counsel reasonably acceptable
to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or
related proceedings in
23
<PAGE> 24
the same jurisdiction, be liable for the reasonable fees and expenses
of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties
indemnified pursuant to Section 8(a) and by the Company in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party
shall not be liable for any settlement of any proceeding effected
without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of
which indemnification may be sought hereunder (whether or not any
indemnified party is an actual or potential party to such claim,
action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand
and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as
any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if
24
<PAGE> 25
the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The
amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute
any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter, and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 8(d) to contribute are
several in proportion to their respective underwriting obligations and
not joint.
(e) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any
supplement or amendment thereto, each party against whom contribution
may be sought under this Section 8 hereby consents to the jurisdiction
of any court having jurisdiction over any other contributing party,
agrees that process issuing from such court may be served upon him or
it by any other contributing party and consents to the service of such
process and agrees that any other contributing party may join him or
it as an additional defendant in any such proceeding in which such
other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the indemnifying
party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnity and contribution
agreements contained in this Section 8 and the representations and
warranties of the Company set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, its officers or employees, any person
controlling any Underwriter, the Company, its directors or officers or
any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, its officers, or
employees, or to the Company, its directors or officers, or any person
controlling the Company or any Underwriter, shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion
of the Shares which such
25
<PAGE> 26
Underwriter has agreed to purchase and pay for on such date (otherwise
than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts
to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts
as may be agreed upon and upon the terms set forth herein, the Firm
Shares or Option Shares, as the case may be, which the defaulting
Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option
Shares, as the case may be, agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed
10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in
proportion to the respective numbers of Firm Shares or Option Shares,
as the case may be, which they are obligated to purchase hereunder, to
purchase the Firm Shares or Option Shares, as the case may be, which
such defaulting Underwriter or Underwriters failed to purchase, or
(b) if the aggregate number of shares of Firm Shares or Option Shares,
as the case may be, with respect to which such default shall occur
exceeds 10% of the Firm Shares or Option Shares, as the case may be,
covered hereby, the Company or you as the Representatives of the
Underwriters will have the right, by written notice given within the
next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in
Section 8 hereof. In the event of a default by any Underwriter or
Underwriters, as set forth in this Section 9, the Closing Date or
Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may
determine in order that the required changes in the Registration
Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken
under this Section 9 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this
Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to
Alex. Brown & Sons Incorporated, 101 California Street, San Francisco,
California 94111, Attention: James Scopa, with a copy to Alex. Brown &
Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland
21202. Attention: General Counsel; if to the Company, to 11149 North
Torrey Pines Road, La Jolla, California 92037, Attention: Chief
Executive Officer.
26
<PAGE> 27
11. TERMINATION.
This Agreement may be terminated by you by notice to the
Company as follows:
(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale by notice to the Underwriters, or
(ii) 11:30 a.m. on the first business day following the date of this
Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Company or the earnings, business, management,
properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, whether or not arising in the
ordinary course of business, (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency or other
national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make
it impracticable to market the Shares or to enforce contracts for the
sale of the Shares, or (iii) suspension of trading in securities
generally on the New York Stock Exchange or the American Stock Exchange
or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such Exchange, (iv) the
enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects or may
materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or
New York State authorities, (vi) the suspension of trading of the
Company's Common Stock on the Nasdaq National Market or (vii) the
taking of any action by any governmental body or agency in respect of
its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States;
or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of
the Underwriters and the Company and their respective successors,
executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or
assign merely because of such purchase.
27
<PAGE> 28
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that
the only information furnished or to be furnished by any Underwriter
to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph
on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under
the Act and the information under the caption "Underwriting" in the
Prospectus.
14. CONSENT TO JURISDICTION.
The Company hereby irrevocably and unconditionally agrees that
service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Company
at the address of the Principal Officer set forth in the Registration
Statement.
15. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter, its officers or
employees, or controlling person thereof, or by or on behalf of the
Company or its directors or officers and (c) delivery of and payment
for the Shares under this Agreement.
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.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
28
<PAGE> 29
If the foregoing Agreement is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
AURORA BIOSCIENCES CORPORATION
By: ____________________________________________________
Timothy J. Rink, M.D., ScD., Chief Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
HAMBRECHT & QUIST LLC
ROBERTSON, STEPHENS & COMPANY
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By: _______________________________________________
Authorized Officer
29
<PAGE> 30
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ------------------------
<S> <C>
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
Robertson, Stephens & Company
_________
Total 3,000,000
</TABLE>
30
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
AURORA BIOSCIENCES CORPORATION
AURORA BIOSCIENCES CORPORATION, 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: The name of the Corporation is Aurora Biosciences Corporation.
SECOND: The date on which the Certificate of Incorporation of the
Corporation was originally filed with the Secretary of State of the State of
Delaware is January 22, 1996.
THIRD: The Board of Directors of the Corporation, acting in accordance
with the provisions of Sections 141 and 242 of the General Corporation Law of
the State of Delaware, adopted resolutions amending its Certificate of
Incorporation as follows:
The first paragraph of Article IV A. shall be amended to add two
sentences thereto, such sentences to read as follows:
"Effective at the time of filing with the Secretary of State of the State
of Delaware of this Certificate of Amendment of Restated Certificate of
Incorporation (the "Effective Time"), each share of the Corporation's
Common Stock, par value $0.001 per share, issued and outstanding or held
in treasury at the Effective Time shall, automatically and without any
action on the part of the respective holders thereof, be subdivided and
converted into eight-tenths (.8) of one share of Common Stock, par value
$0.001 per share, of the Corporation. No fractional shares will be issued
and, in lieu thereof, any holder of less than one share of Common Stock
shall be entitled to receive cash for such holder's fractional share based
on the fair market value per share as of the Effective Time as determined
in good faith by the Board of Directors."
FOURTH: Thereafter, pursuant to a resolution of the Board of Directors
this Certificate of Amendment was submitted to the stockholders of the
Corporation for their approval, and was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
1.
<PAGE> 2
IN WITNESS WHEREOF, Aurora Biosciences Corporation has caused this
Certificate of 25th Amendment to be signed by its President and attested to by
its Secretary this 25th day of April, 1997.
AURORA BIOSCIENCES
CORPORATION
By: /s/ Timothy J. Rink
------------------------------
Timothy J. Rink, President
ATTEST:
/s/ Deborah J. Tower
- -----------------------------
Deborah J. Tower, Secretary
2.
<PAGE> 1
EXHIBIT 3.4
RESTATED CERTIFICATE OF INCORPORATION
OF
AURORA BIOSCIENCES CORPORATION
AURORA BIOSCIENCES CORPORATION, a corporation organized and existing under
the laws of the state of Delaware, hereby certifies as follows:
FIRST. The name of the corporation is Aurora Biosciences Corporation.
SECOND. The date of the filing of the corporation's original Certificate of
Incorporation with the Secretary of State of Delaware was January
22, 1996.
THIRD. This Restated Certificate of Incorporation was duly adopted by the
corporation in accordance with Section 245 of the General
Corporation Law of the State of Delaware.
FOURTH. The Certificate of Incorporation of the corporation shall be amended
and restated to read in full as follows.
I.
The name of this corporation is AURORA BIOSCIENCES CORPORATION.
II.
The address, including street, number, city, and county, of the registered
office of the corporation in the State of Delaware is 30 Old Rudnick Lane, City
of Dover, County of Kent; and the name of the registered agent of the
corporation in the State of Delaware at such address is CorpAmerica Inc.
III.
1.
<PAGE> 2
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the Delaware General Corporation
Law.
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
fifty-seven million five hundred thousand (57,500,000) shares. Fifty million
(50,000,000) shares shall be Common Stock, each having a par value of one-tenth
of one cent ($0.001). Seven million five hundred thousand (7,500,000) shares
shall be Preferred Stock, each having a par value of one-tenth of one cent
($0.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate
pursuant to the Delaware General Corporation Law, to fix or alter from time to
time the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof, including
without limitation the dividend rights, dividend rate, conversion rights, voting
rights 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.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock, the Board of Directors or any individual director may be removed from
office at any time (i) with cause by the affirmative vote of the holders of a
majority of the voting power of all the then-outstanding shares of voting stock
of the corporation, entitled to vote at an election of directors (the "Voting
Stock") or (ii) without cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all the
then-outstanding shares of the Voting Stock.
3. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected
2.
<PAGE> 3
in accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified.
4. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote 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. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
5. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
6. 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.
7. 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.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any 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 an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation 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, this Certificate
of Incorporation or any Preferred Stock Designation, 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 Articles V, VI,
and VII.
3.
<PAGE> 4
IN WITNESS WHEREOF, said Aurora Biosciences Corporation has caused this
Certificate to be signed by its President and Chief Executive Officer, Timothy
J. Rink, and attested to by its Secretary, Deborah J. Tower, this _____th day
of May, 1997.
_____________________________
TIMOTHY J. RINK
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
ATTEST:
__________________________________
DEBORAH J. TOWER
SECRETARY
4.
<PAGE> 1
EXHIBIT 3.5
RESTATED BYLAWS
OF
AURORA BIOSCIENCES CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business in San Diego, California, at such place as
may be fixed by the Board of Directors, and 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
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
1.
<PAGE> 2
(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 executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date of the corporation's proxy statement
released to stockholders in connection with the previous year's annual meeting
of stockholders; 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 not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. 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. Notwithstanding 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.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the
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procedures set forth in this paragraph (b). 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 5. 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 which 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 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 paragraph (b) of this Section 5.
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.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation
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with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board, (ii) the
Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at the time
any such resolution is presented to the Board for adoption) or (iv) by the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting, and shall be held at such place, on such date, and at such time
as the Board of Directors shall fix.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the Chairman of the Board of
Directors, the Chief Executive Officer, or the Secretary of the corporation. No
business may be transacted at such special meeting otherwise than specified in
such notice. The Board of Directors shall determine the time and place of such
special meeting, which shall be held not less than thirty-five (35) nor more
than one hundred twenty (120) days after the date of the receipt of the request.
Upon determination of the time and place of the meeting, the officer receiving
the request shall cause notice to be given to the stockholders entitled to vote,
in accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
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, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any
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stockholder so waiving notice of such meeting shall be bound by the proceedings
of any such meeting in all respects as if due notice thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum any meeting
of stockholders may be adjourned, from time to time, either by the Chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of Directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by statute or by the Certificate of Incorporation or these
Bylaws, a majority of the outstanding shares of such class or classes or series,
present in person or represented by proxy, shall constitute a quorum entitled to
take action with respect to that vote on that matter and, except where otherwise
provided by statute or by the Certificate of Incorporation or these Bylaws, the
affirmative vote of the majority (plurality, in the case of the election of
Directors) of the votes cast, including abstentions, by the holders of shares of
such class or classes or series shall be the act of such class or classes or
series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the Chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. 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.
SECTION 10. VOTING RIGHTS.
For the purpose of determining those stockholders entitled to vote
at any meeting of the stockholders, except as otherwise provided by law, only
persons in whose
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names shares stand on the stock records of the corporation on the record date,
as provided in Section 12 of these Bylaws, shall be entitled to vote at any
meeting of stockholders. Except as may be otherwise provided in the Certificate
of Incorporation or these Bylaws, each stockholder shall be entitled to one vote
for each share of capital stock held by such stockholder. Every person entitled
to vote shall have the right to do so either in person or by an agent or agents
authorized by a proxy granted in accordance with Delaware law. An agent so
appointed need not be a stockholder. No proxy shall be voted after three (3)
years from its date of creation unless the proxy provides for a longer period.
SECTION 11. BENEFICIAL OWNERS OF STOCK.
(a) If shares or other securities having voting power stand of
record in the names of two (2) or more persons, whether fiduciaries, members of
a partnership, joint tenants, tenants in common, tenants by the entirety, or
otherwise, or if two (2) or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect: (a) if only one (1) votes, his act
binds all; (b) if more than one (1) votes, the act of the majority so voting
binds all; (c) if more than one (1) votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the General Corporation Law of Delaware, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of this subsection
(c) shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
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 specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders of the corporation except at an annual or special meeting of the
stockholders called in accordance with these Bylaws and no action shall be taken
by the stockholders by written consent.
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SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies, and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless, and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the Directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws. No reduction of the authorized number of
Directors shall have the effect of removing any Director before the Director's
term of office expires, unless such removal is made pursuant to the provisions
of Section 19 hereof.
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SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 17. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 18. RESIGNATION. Any Director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. Except as
otherwise provided in the Certificate of Incorporation with respect to the
filling of vacancies on the Board, when one or more Directors shall resign from
the Board of Directors, effective at a future date, a majority of the Directors
then in office, including those who have so resigned, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each Director so chosen shall hold
office for the unexpired portion of the term of the Director whose place shall
be vacated and until his successor shall have been duly elected and qualified.
SECTION 19. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
SECTION 20. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the
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place where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any three of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the Directors not present shall sign a written waiver of
notice, or a consent to holding such meeting, or an approval of the minutes
thereof. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in any
written waiver of notice or consent unless so required by the Certificate of
Incorporation or these Bylaws. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
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SECTION 21. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 42 hereof, for which a quorum shall be one-third of the exact number of
Directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of Directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the Directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present all questions and business shall be determined by the affirmative vote
of a majority of the Directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
SECTION 22. ACTION WITHOUT MEETING. 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 of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 23. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 24. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and 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, including without limitation
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the power or authority to declare a dividend, to authorize the issuance of stock
and to adopt a certificate of ownership and merger, 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 (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), 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.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) TERM. The members of all committees of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Section 24, may at any time increase or decrease
the number of members of a committee or terminate the existence of a committee.
The membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors 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, and, in addition, in the absence or
disqualification of any 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.
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(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 24 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any Director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any Director by attendance thereat, except when the Director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 25. ORGANIZATION. At every meeting of the Directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 26. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
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SECTION 27. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 27.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders,
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any
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Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER OR TREASURER. The Chief
Financial Officer or Treasurer shall keep or cause to be kept the books of
account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as often
as required by the Board of Directors or the President. The Chief Financial
Officer or Treasurer, subject to the order of the Board of Directors, shall have
the custody of all funds and securities of the corporation. The Chief Financial
Officer or Treasurer shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. The President
may direct any Assistant Treasurer, or the Controller or any Assistant
Controller to assume and perform the duties of the Chief Financial Officer or
Treasurer in the absence or disability of the Chief Financial Officer or
Treasurer, and each Assistant Treasurer and each Controller and Assistant
Controller shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
SECTION 28. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 29. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 30. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
14.
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EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed as aforesaid or
in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositories on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of
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Incorporation and applicable law. 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 of the Board of Directors, or the President or any Vice President
and by the Treasurer or Assistant Treasurer or the Secretary or Assistant
Secretary, certifying the number of shares owned by him in the corporation. Any
or all of the signatures on the certificate may be facsimiles. 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 with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back 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. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section 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. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 34. LOST CERTIFICATES. A new certificate or certificates shall 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. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, 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 or to
give the corporation a surety bond in such form and amount 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 35. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized,
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and upon the surrender of a properly endorsed certificate or certificates for a
like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
SECTION 36. FIXING RECORD DATES.
(a) 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, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. 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.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix, in advance, a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by law, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to
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consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders 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
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 37. 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 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 VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 33), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest
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coupon, shall have ceased to be such officer before the bond, debenture or other
corporate security so signed or attested shall have been delivered, such bond,
debenture or other corporate security nevertheless may be adopted by the
corporation and issued and delivered as though the person who signed the same or
whose facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 39. DECLARATION OF DIVIDENDS. 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 pursuant to law at any regular
or special meeting. 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 40. 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 Board of 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 purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 42. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) 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
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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 or (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.
(b) 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.
(c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any Director or executive 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 paragraph
(e) of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (1) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to the
proceeding, or (2) 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.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to Directors and executive
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 executive officer. Any right to indemnification
or advances granted by this Bylaw to a Director or executive 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
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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 claim. In connection with any claim for indemnification, 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 amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence 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, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his or her conduct was
lawful. 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 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 claimant has not met the applicable standard of conduct. In
any suit brought by a director or executive officer to enforce a right to
indemnification or to an advancement of expenses hereunder, the burden of
proving that the director or executive officer is not entitled to be
indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) 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, 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.
(f) 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.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may
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purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(h) 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 director, officer, employee or agent of the
corporation.
(i) 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 executive 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.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) 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 testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) 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.
(3) 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.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director,
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executive officer, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(5) 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 XII
NOTICES
SECTION 43. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
Director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director.
(c) ADDRESS UNKNOWN. If no address of a stockholder or Director be
known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.
(d) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall, in the absence of fraud, be prima
facie evidence of the facts therein contained.
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(e) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(f) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
(h) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(i) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that
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notice be given to such person shall be reinstated. In the event that the action
taken by the corporation is such as to require the filing of a certificate under
any provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 44. AMENDMENTS. Subject to paragraph (h) of Section 42 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote 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. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 45. 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 Section 46 shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
25.
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Exhibit 4.2
C
COMMON STOCK
COMMON STOCK
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE,
OF AURORA BIOSCIENCES CORPORATION
transferable on the books of the Corporation in person or by duly authorized
attorney on surrender of this certificate properly endorsed. This certificate
shall not be valid until countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the signatures of its duly
authorized officers.
Dated:
SECRETARY CHAIRMAN AND CEO
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST COMPANY OF CALIFORNIA
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT --..................... Custodian....................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors
TEN ENT -- as tenants by the entireties Act ..............................................
JT TEN -- as joint tenants with right of (State)
survivorship and not as tenants UNIF TRF MIN ACT -- ................. Custodian (until age...........)
in common (Cust)
.......................... under Uniform Transfers
(Minor)
to Minors Act.....................................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,_______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
- -------------------------------------------------------------------------------
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________________
X _____________________________________
X _____________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By _______________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.1
AURORA BIOSCIENCES CORPORATION
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this day __________ of ______,
1996 by and between AURORA BIOSCIENCES CORPORATION, a Delaware corporation (the
"Corporation"), and ____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in
[his/her] capacity as a [Director/Executive Officer/Officer] of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as a
[Director/Executive Officer/Officer] of the Corporation, the Corporation has
determined and agreed to enter into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as a
[Director/Executive Officer/Officer] after the date hereof, the parties hereto
agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as a
[Director/Executive Officer/Officer] of the Corporation or as a director,
officer or other fiduciary of an affiliate of the Corporation (including any
employee benefit plan of the Corporation) faithfully and to the best of
[his/her] ability so long as [he/she] is duly elected and qualified in
accordance with the provisions of the Bylaws or other applicable charter
documents of the Corporation or such affiliate; provided, however, that Agent
may at any time and for any reason resign from such position (subject to any
contractual obligation that Agent may have assumed apart from this Agreement)
and that the
1.
<PAGE> 2
Corporation or any affiliate shall have no obligation under this Agreement to
continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
A) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him ("Liabilities") in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in the
right of the Corporation) to which Agent is, was or at any time becomes a party,
or is threatened to be made a party (a "Proceeding"), by reason of the fact that
Agent is, was or at any time becomes a director, officer, employee or other
agent of Corporation, or is or was serving or at any time serves at the request
of the Corporation as a director, officer, employee or other 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 Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 42
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
A) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the 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;
B) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
2.
<PAGE> 3
C) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
D) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
E) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent 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); or
F) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent 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, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the Liabilities
in connection with any Proceeding even if not entitled hereunder to
indemnification for the total amount thereof, and the Corporation shall
indemnify Agent for the portion thereof to which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this
3.
<PAGE> 4
Agreement, notify the Corporation of the commencement thereof; but the omission
so to notify the Corporation will not relieve it from any liability which it may
have to Agent otherwise than under this Agreement. With respect to any such
action, suit or proceeding as to which Agent notifies the Corporation of the
commencement thereof:
A) the Corporation will be entitled to participate therein at its
own expense;
B) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and Agent in the conduct of the defense of such action
or (iii) the 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 Agent's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Agent shall have made
the conclusion provided for in clause (ii) above;
C) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
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 or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion;
D) if there is a Change in Control (defined below) of the
Corporation (other than a Change in Control that has been approved by a majority
of the Corporation's Board of Directors who were directors immediately prior to
such Change in Control), then with respect to all matters thereafter arising
concerning the rights of Agent to indemnity, expense payments and/or advances
under this Agreement or any other agreement or corporate Bylaw now or hereafter
in effect, the Corporation shall seek legal advice only from Independent Legal
Counsel (defined below) selected by Agent and approved by the Corporation (which
approval shall not be unreasonably withheld). Such
4.
<PAGE> 5
counsel, among other things, shall render its written opinion to the Corporation
and Agent as to whether and to what extent Agent would be permitted to be
indemnified under applicable law. The Corporation shall pay the reasonable fees
of such Independent Legal Counsel and fully indemnify such counsel against any
and all expenses (including attorneys' fees), claims, liabilities and damages
arising out of or relating to this Agreement or its engagement pursuant hereto;
and
E) for purposes of this Section, (i) a "Change in Control" shall be
deemed to have occurred if (A) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Corporation or a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as their
ownership of the stock of the Corporation, becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Corporation representing 20% or more of the total voting power represented
by the Corporation's then outstanding voting securities, (B) during any period
of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Corporation and any new director whose
election by the Board of Directors or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds (2/3)
of the directors still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, (C) the
stockholders of the Corporation approve a merger or consolidation of the
Corporation with any other corporation, other than a merger or consolidation
that would result in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the total voting power represented by the voting
securities of the Corporation or such surviving entity outstanding immediately
after such merger or consolidation, or (D) the stockholders or the Corporation
approve a plan of complete liquidation of the Corporation or an agreement for
the sale or disposition by the Corporation of (in one transaction or a series of
transactions) all or substantially all of the Corporation's assets, and (ii)
"Independent Legal Counsel" shall be defined as an attorney or firm of
attorneys, selected in accordance with this Section, who have not otherwise
performed services for the Corporation or Agent within the last five years
(other than with respect to matters concerning the rights of Agent under this
Agreement, or of other agents under similar indemnity agreements).
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent
5.
<PAGE> 6
to repay said amounts if it shall be determined ultimately that Agent is not
entitled to be indemnified under the provisions of this Agreement, the Bylaws,
the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent 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. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise. In any suit
brought by Agent to enforce a right to indemnification, contribution or to an
advancement of expenses hereunder, the burden of proving that Agent is not
entitled to such indemnification, contribution or to such advancement of
expenses shall be on the Corporation.
10. CONTRIBUTION. If the indemnification provided in Sections 2 and 3
is unavailable and may not be paid to Agent for any reason other than those set
forth in Section 4, 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 Agent (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 Agent in such proportion as is appropriate to
reflect (i) the relative benefits received by Corporation on the one hand and
Agent 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 Agent on the other 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 Agent 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 expense, judgments,
fines or settlement amounts. Corporation agrees that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by pro
rata
6.
<PAGE> 7
allocation or any other method of allocation which does not take account of
the foregoing equitable considerations.
11. INSURANCE AND FUNDING. Corporation hereby represents and warrants
that it shall purchase and maintain insurance to protect itself and/or Agent
against any Liabilities in connection with any Proceeding to the extent
reasonably determined by the Corporation to be appropriate and as permitted by
Delaware Law.
12. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
13. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the 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.
14. SURVIVAL OF RIGHTS.
A) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
B) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
15. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
7.
<PAGE> 8
16. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
17. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
18. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
19. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
20. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
A) If to Agent, at the address indicated on the signature page
hereof.
B) If to the Corporation, to
Aurora Biosciences Corporation
11149 North Torrey Pines Road
La Jolla, California 92037
Attention: Chief Executive Officer
or to such other address as may have been furnished to Agent by the Corporation.
8.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of
the day and year first above written.
AURORA BIOSCIENCES CORPORATION
By:______________________________________
Title:___________________________________
AGENT
_________________________________________
(Type Name Here)
Address:
_________________________________________
_________________________________________
_________________________________________
9.
<PAGE> 1
EXHIBIT 10.25
MULTI-TENANT INDUSTRIAL LEASE
(TRIPLE NET)
LANDLORD:
AEW/LBA ACQUISITION CO. II, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
TENANT:
AURORA BIOSCIENCES CORPORATION,
A DELAWARE CORPORATION
<PAGE> 2
STANDARD FORM MULTI-TENANT INDUSTRIAL LEASE
TABLE OF CONTENTS
SECTION TITLE PAGE
- ------- ----- ----
1. Premises...............................................................1
2. Term...................................................................2
3. Rent...................................................................3
4. Common Area; Operating Expenses........................................3
5. Security Deposit.......................................................6
6. Use....................................................................7
7. Payments and Notices...................................................9
8. Brokers................................................................9
9. Surrender; Holding Over...............................................10
10. Taxes.................................................................10
11. Possession; Condition of Premises; Repairs............................11
12. Alterations...........................................................12
13. Liens.................................................................13
14. Assignment and Subletting.............................................13
15. Entry by Landlord.....................................................15
16. Utilities and Services................................................15
17. Indemnification and Exculpation.......................................15
18. Damage or Destruction.................................................16
19. Eminent Domain........................................................17
20. Tenant's Insurance....................................................18
21. Landlord's Insurance..................................................19
22. Waivers of Subrogation................................................19
23. Tenant's Default and Landlord's Remedies..............................19
24. Landlord's Default....................................................21
25. Subordination.........................................................21
26. Estoppel Certificate..................................................21
27. Intentionally Omitted.................................................22
28. Modification and Cure Rights of Landlord's Mortgagees and Lessors.....22
29. Quiet Enjoyment.......................................................22
30. Transfer of Landlord's Interest.......................................22
31. Limitation on Landlord's Liability....................................22
32. Miscellaneous.........................................................22
33. Lease Execution.......................................................24
34. Intentionally Omitted.................................................24
EXHIBITS
EXHIBIT "A" Project Site Plan
EXHIBIT "B" Floor Plan
EXHIBIT "C" Work Letter Agreement
EXHIBIT "D" Sample Form of Notice of Lease Term Dates
EXHIBIT "E" Rules and Regulations
EXHIBIT "F" Sample Form of Tenant Estoppel Certificate
EXHIBIT "G" Tenant Environmental Questionnaire
-i-
<PAGE> 3
STANDARD FORM MULTI-TENANT INDUSTRIAL LEASE
INDEX OF DEFINED TERMS
TERM PAGE
Abandonment...................................................................19
Acceptance.....................................................................6
Act...........................................................................12
Actual Statement...............................................................5
Applicable Laws................................................................7
Applicable Reassessment.......................................................11
Audit Notice...................................................................5
BMS............................................................................6
BOMA...........................................................................1
Common Area....................................................................3
Construction Allowance.................................................Exhibit C
Declaration....................................................................3
Draw Request...........................................................Exhibit C
Election Date..................................................................1
Estimate Statement.............................................................5
Evidence of Completion.................................................Exhibit C
Extension Option...............................................................2
Extension Options..............................................................2
Fair Market Rental.............................................................2
First Refusal Notice...........................................................1
First Refusal Space............................................................1
Force Majeure Delays..........................................................23
Hazardous Materials............................................................8
Increase Date..................................................................6
Indemnified Claims............................................................15
Initial Reduction Date.........................................................6
Landlord.......................................................................1
Landlord Delay.........................................................Exhibit C
Landlord Indemnified Parties...................................................8
LC Delivery Date...............................................................6
Lease..........................................................................1
Letter of Credit...............................................................6
Lilly..........................................................................6
Management Fee.................................................................3
Nondisturbance Condition......................................................21
Option Period..................................................................2
PCBs...........................................................................8
Permitted Business............................................................14
Permitted Transfer............................................................14
Permitted Transferee..........................................................14
Pre-Approved Change...........................................................12
Preliminary Plans......................................................Exhibit C
Proposition 13 Protection Amount..............................................11
Proposition 13 Purchase Price.................................................11
Real Property Taxes...........................................................10
Reassessment..................................................................11
Summary........................................................................1
Tax Increase..................................................................11
Tenant.........................................................................1
Tenant Change.................................................................12
Tenant Changes................................................................12
Tenant Improvement Allowance Items.....................................Exhibit C
Tenant Improvements....................................................Exhibit C
Tenant Indemnified Parties....................................................15
Tenant Parties................................................................15
Tenant's Election Notice.......................................................1
Tenant's Monthly Operating Expense Charge......................................5
Tenant's Parties...............................................................8
Tenant's Share.................................................................1
Transfer......................................................................13
Transfer Date.................................................................14
Transfer Notice...............................................................14
Transferee....................................................................14
-ii-
<PAGE> 4
1.11 SECURITY DEPOSIT: See Section 5.
1.12 PERMITTED USE: General office, research and development, screen
development and screening services and the assembly and integration of
Tenant's ultra-high throughput screening system, and any other lawful
use incidental thereto.
1.13 BROKERS: John Burnham & Company representing Landlord and John Burnham
& Company representing Tenant.
1.14 INTEREST RATE: The lesser of: (a) the rate announced from time to time
by Wells Fargo Bank or, if Wells Fargo Bank ceases to exist or ceases
to publish such rate, then the rate announced from time to time by the
largest (as measured by deposits) chartered operating bank operating in
California, as its "prime rate" or "reference rate", plus two percent
(2%); or (b) the maximum rate permitted by law.
1.15 TENANT IMPROVEMENTS: The tenant improvements to be installed in the
Premises by Tenant as described in the Work Letter Agreement attached
hereto as Exhibit "C".
- ---------------------- ------------------------
Landlord's Initials Tenants Initials
-iv-
<PAGE> 5
MULTI-TENANT INDUSTRIAL LEASE
This LEASE ("LEASE"), which includes the preceding Summary of Basic Lease
Information and Definitions ("SUMMARY") attached hereto and incorporated herein
by this reference, is made as of the 7th day of April, 1997, by and
between AEW/LBA ACQUISITION CO. II, LLC, a California limited liability company
("LANDLORD"), and AURORA BIOSCIENCES CORPORATION, a Delaware corporation
("TENANT").
1. PREMISES.
1.1 PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the Premises upon and subject to the terms, covenants and
conditions contained in this Lease to be performed by each party.
1.2 LANDLORD'S RESERVATION OF RIGHTS. Provided Tenant's use of and access
to the Premises is not interfered with in an unreasonable manner, Landlord
reserves the right from time to time to install, use, maintain, repair, replace
and relocate pipes, ducts, conduits, wires and appurtenant meters and equipment
above the ceiling surfaces, below the floor surfaces and within the walls of the
Building and the Premises.
1.3 TENANT'S SHARE. "TENANT'S SHARE" means a fraction, the numerator of
which is the total rentable square footage of the Premises and the denominator
of which is the total rentable square footage of all buildings in the Project,
including the Premises, which from time to time have been constructed within the
Project (commencing at such time as the occupants of such buildings commence to
pay rent or Operating Expenses or open for business, whichever is earlier). From
time to time at Landlord's option, Landlord's architect may determine and
redetermine the actual rentable square footage of the Premises and other
building(s) in question (calculated in accordance with ANSI/BOMA Z65.1-1996),
and thereupon Tenant's Share will be adjusted accordingly.
1.4 RIGHT OF FIRST REFUSAL. In the event that at any time during the first
two (2) years of the Term, Landlord receives a bona fide offer to lease any
space on the second (2nd) floor of the Building ("FIRST REFUSAL SPACE") that
Landlord desires to accept, Landlord shall give Tenant written notice ("FIRST
REFUSAL NOTICE") of such offer. The First Refusal Notice shall set forth the
offer and the terms thereof. On or before the date which is five (5) days after
Tenant's receipt of the First Refusal Notice (the "ELECTION DATE"), Tenant shall
deliver written notice to Landlord ("TENANT'S ELECTION NOTICE") pursuant to
which Tenant shall elect either to (i) lease the entire First Refusal Space
described in the First Refusal Notice upon the terms set forth in the First
Refusal Notice; (ii) decline to lease such First Refusal Space identified in the
First Refusal Notice, specifying that such decline is not based upon the terms
set forth in the First Refusal Notice, but upon Tenant's lack of need for such
First Refusal Space, in which event Landlord may lease such First Refusal Space
to any entity on any terms Landlord desires and Tenant's right of first refusal
with respect to the First Refusal Space specified in the First Refusal Notice
shall thereupon terminate and be of no further force or effect; or (iii) decline
to lease the First Refusal Space, specifying that such decline is based upon the
terms set forth in the First Refusal Notice, in which event Tenant shall also
specify in Tenant's Election Notice revised terms upon which Tenant would be
willing to lease such First Refusal Space. If Tenant does not so respond in
writing to the First Refusal Notice by the Election Date, Tenant shall be deemed
to have elected the option described in clause (ii) above. If Tenant timely
delivers to Landlord Tenant's Election Notice pursuant to clause (iii) above,
Landlord may elect either to: (a) lease such First Refusal Space to Tenant upon
the revised terms specified by Tenant in Tenant's Election Notice; or (b) lease
the First Refusal Space to any person or entity upon any terms Landlord desires;
provided, however, if (1) the terms of Landlord's proposed lease to said third
party are more favorable in any material way to the third party than those terms
proposed by Tenant in Tenant's Election Notice, or (2) the size of the First
Refusal Space to be leased to such third party is less than the size of the
First Refusal Space offered to Tenant, before entering into such third party
lease, Landlord shall notify Tenant of such more favorable terms (or such
reduced size) and Tenant shall have the right to lease the First Refusal Space
upon such more favorable terms (or as to such reduced size) by delivering
written notice thereof to Landlord within five (5) days after Tenant's receipt
of Landlord's notice. If Tenant does not elect to lease such space from Landlord
within said five (5) day period, Tenant shall be deemed to have elected the
option described in clause (ii) above. In determining whether the terms of
Landlord's proposed lease to a third party are more favorable to the third party
than those terms proposed by Tenant in Tenant's Election Notice, all concessions
shall be blended into an effective rental rate over the term of the proposed
lease to said third party and such effective rental rate shall be compared with
the effective rental rate of the terms proposed by Tenant in Tenant's Election
Notice. If Tenant leases any First Refusal Space pursuant to this Section 1.4,
as soon as reasonably possible after the Election Date, Landlord and Tenant
shall enter into a lease incorporating the terms of Tenant's lease of the First
Refusal Space. The right of first refusal set forth in this Section 1.4 shall be
exercisable by the original Tenant and a Permitted Transferee only if the
original Tenant or Permitted Transferee, as applicable, occupies the entire
Premises as of the date it exercises its right in accordance with the terms of
this Section 1.4. Tenant shall not have the right to exercise its right of first
refusal if, as of the date of the attempted exercise of such right by Tenant,
Tenant is in default under this Lease after the expiration of all applicable
cure periods.
1.5 VERIFICATION OF RENTABLE SQUARE FEET OF PREMISES AND BUILDING. For
purposes of this Lease, "rentable square feet" shall be calculated pursuant to
the Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA
Z65.1--1996 for rentable area ("BOMA"), and Tenant acknowledges that the
rentable square footage of the Building may include all of, and the rentable
square footage of the Premises therefore may include a portion of, the square
footage of the ground floor Common Areas located within the Building and the
Common Area and other space in the Building dedicated to the service of the
Building. At either party's election by giving written notice thereof to the
other within sixty (60) days following the date hereof, the number of rentable
square feet of the Premises and the Building shall be subject to verification in
accordance with the provisions of this Section 1.5 by Stevenson Systems. In the
event that Stevenson Systems determines that the amounts thereof shall be
different from those set forth in this Lease, the parties shall modify all
amounts, percentages and figures appearing or referred to in this Lease to
conform to such corrected rentable square
<PAGE> 6
footage, including Tenant's Share of Operating Expenses, Basic Rent, the
Management Fee and the Construction Allowance.
2. TERM.
2.1 TERM; NOTICE OF LEASE DATES. The Term of this Lease shall be for the
period designated in Section 1.8 of the Summary commencing on the Commencement
Date, and ending on the expiration of such period, unless the Term is sooner
terminated or extended as provided in this Lease. Notwithstanding the foregoing,
if the Commencement Date falls on any day other than the first day of a calendar
month then the term of this Lease will be measured from the first day of the
month following the month in which the Commencement Date occurs. Within ten (10)
days after Landlord's written request, Tenant shall execute a written
confirmation of the Commencement Date and expiration date of the Term in the
form of the Notice of Lease Term Dates attached hereto as Exhibit "D".
2.2 EARLY OCCUPANCY OF THE GROUND FLOOR. It is contemplated that Tenant may
complete the Tenant Improvements and commence business operations in a portion
of the ground floor of the Premises prior to the Commencement Date. In such
event, Tenant shall provide Landlord with prior notice of the date of completion
of such Tenant Improvements and commencement of business operations in that
portion of the ground floor of the Premises. Such early occupancy prior to the
Commencement Date shall be subject to all of the provisions of this Lease,
except that Tenant shall have no obligation to pay Monthly Basic Rent, the
Management Fee or Tenant's Share of Operating Expenses during such period, but
Tenant shall pay the water and utility charges set forth in Section 3.6.
2.3 OPTIONS TO EXTEND. Tenant shall have two (2) options (individually, an
"EXTENSION OPTION" and collectively, the "EXTENSION OPTIONS") to extend the Term
for a period (individually, an "OPTION PERIOD") of five (5) years each,
commencing upon the expiration of the initial Term and the expiration of the
first (1st) Option Period, as the case may be, upon the same terms and
conditions previously applicable, except for the grant of any exercised
Extension Option and Annual Basic Rent (which shall be determined as set forth
below). Each Extension Option may be validly exercised only by notice in writing
received by Landlord not later than six (6) months prior to commencement of the
Option Period; provided, however, that the Extension Option may be validly
exercised only if no material default (which default is continuing after notice
and the expiration of any applicable grace period provided for in this Lease)
exists as of the date of exercise and, at Landlord's option, as of the
commencement of the Option Period. If Tenant does not exercise an Extension
Option during the exercise period set forth above in strict accordance with the
provisions hereof, the Extension Options shall forever terminate and be of no
further force or effect. The Extension Options are personal to the original
Tenant and any Permitted Transferee, may not be exercised by any person or
entity other than the original Tenant or any Permitted Transferee, and shall
become null and void if the original Tenant assigns its interest in this Lease
or sublets any portion of the Premises to anyone other than a Permitted
Transferee.
Annual Basic Rent during each Option Period shall be equal to Fair Market Rental
as of the commencement of such Option Period. For purposes hereof, "FAIR MARKET
RENTAL" shall mean the base rent, including escalators, payable during the
relevant Option Period to a willing landlord by a willing tenant having a
similar financial responsibility, credit rating and capitalization as Tenant
then has, taking into account all other relevant factors for like and comparable
laboratory/office space improved with tenant improvements of like and comparable
quality to those then existing in the Premises in the Torrey Pines/University
Towne Centre market, but excluding the then-existing value of any Tenant
Improvements or Tenant Changes paid for by Tenant in excess of the Construction
Allowance. At least five (5) months prior to the Option Period, Landlord shall
notify Tenant of the Fair Market Rental as determined by Landlord. Any dispute
between the parties hereto with respect to the amount so determined shall be
resolved by appraisal, as set forth below; provided, however, that there shall
be deemed not to be such a dispute unless Tenant notifies Landlord thereof in
writing within two (2) months after Landlord so notifies Tenant of the Fair
Market Rental and Tenant sets forth in such notice Tenant's determination of
Fair Market Rental. If, in the event of a dispute, the appraisers have not
determined the Fair Market Rental by commencement of the Option Period, Tenant
shall pay as Annual Basic Rent the amount determined by Landlord until such time
as the Fair Market Rental has been determined by appraisal, whereupon Tenant
shall pay any additional amount due to Landlord based upon such subsequent
determination of Fair Market Rental. If the Annual Basic Rent so paid by Tenant
is higher than that ultimately determined by the appraisal process, then
Landlord shall reimburse such difference to Tenant.
If Tenant timely notifies Landlord in writing of Tenant's dispute regarding
Landlord's determination of the Fair Market Rental, then Fair Market Rental
shall be determined as follows. Landlord and Tenant shall each appoint one
appraiser who shall by profession be a real estate appraiser active over the
five (5) year period ending on the date of such appointment in the appraisal of
commercial properties in San Diego County and who shall not have been employed
or engaged by either party during said five (5) year period. Each such appraiser
shall be appointed within fifteen (15) days after Tenant notifies Landlord of
Tenant's dispute of Landlord's determination of Fair Market Rental. The two
appraisers so appointed shall within fifteen (15) days of the date of the
appointment of the last appointed appraiser agree upon and appoint a third
appraiser who shall be qualified under the same criteria set forth above. The
three appraisers shall, within thirty (30) days of the appointment of the third
appraiser, reach a decision as to whether the parties shall use Landlord's or
Tenant's submitted Fair Market Rental for the Premises, and shall notify
Landlord and Tenant thereof. Such decision shall be based upon the criteria and
variables set forth above. The new Annual Basic Rent shall thereafter be equal
to the Fair Market Rental of the Premises so selected by the appraisers. The
decision of the majority of the three appraisers shall be binding upon Landlord
and Tenant. If either Landlord or Tenant fails to appoint an appraiser within
the time period specified hereinabove, the appraiser appointed by one of them
shall reach a decision, notify Landlord and Tenant thereof, and such appraiser's
decision shall be binding upon Landlord and Tenant. If the two appraisers fail
to agree upon and appoint a third appraiser, the two appraisers shall request
the presiding judge of the Superior Court of San Diego, acting in his private
capacity, or the head of the local chapter of the leading appraisal group, to
appoint the third appraiser. Each party shall pay for its own appraiser and
one-half (1/2) of the cost of the third appraiser.
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<PAGE> 7
3. RENT.
3.1 BASIC RENT. Tenant agrees to pay Landlord, as basic rent for the
Premises, the Annual Basic Rent designated in Section 1.9 of the Summary. The
Annual Basic Rent shall be paid by Tenant in twelve (12) equal monthly
installments of Monthly Basic Rent in the amounts designated in Section 1.9 of
the Summary in advance on the first day of each and every calendar month during
the Term, except that the first full month's Monthly Basic Rent shall be paid
upon execution of this Lease by Tenant. Monthly Basic Rent for any partial month
shall be prorated in the proportion that the number of days this Lease is in
effect during such month bears to the actual number of days in such month.
3.2 ADDITIONAL RENT. All amounts and charges payable by Tenant under this
Lease in addition to the Annual Basic Rent described in Section 3.1 above shall
be considered additional rent for the purposes of this Lease, and the word
"rent" in this Lease shall include such additional rent unless the context
specifically or clearly implies that only the Annual Basic Rent is referenced.
The Annual Basic Rent and additional rent shall be paid to Landlord as provided
in Section 7, without any prior demand therefor and without any deduction or
offset except as otherwise provided herein, in lawful money of the United States
of America.
3.3 LATE PAYMENTS. Late payments of Monthly Basic Rent and/or any item of
additional rent will be subject to interest and a late charge as provided in
Section 23.7 below.
3.4 MANAGEMENT FEE. Tenant shall pay to Landlord as additional rent an
annual management fee equal to [TO BE BASED UPON .48/RSF WHEN RSF IS DETERMINED
PRIOR TO LEASE EXECUTION] (the "MANAGEMENT FEE"). The Management Fee shall be
increased on each anniversary of the Commencement Date (or the first day of the
month following the anniversary of the Commencement Date if the Commencement
Date is not the first day of a month) by an amount equal to three percent (3%)
of the Management Fee payable immediately prior to such adjustment. In the event
Tenant exercises the First Negotiation Right under Section 1.4 and leases the
entire Building, the Management Fee shall thereafter be equal to two percent
(2%) of the Annual Basic Rent for the Premises (taking into account the annual
increases in Annual Basic Rent and the fair market value increases in Annual
Basic Rent during the Extension Options). The Management Fee shall be payable in
twelve (12) equal monthly installments together with Monthly Rent.
3.5 TRIPLE-NET LEASE. Except as specifically set forth herein, all rent
shall be absolutely net to Landlord so that this Lease shall yield net to
Landlord, the rent to be paid each month during the Term of this Lease.
Accordingly, except as specifically set forth herein, all costs, expenses and
obligations of every kind or nature whatsoever relating to the Premises, and
Tenant's Share of all costs, expenses and obligations of every kind or nature
whatsoever relating to the remaining portion of the Project, which may arise or
become due during the Term of this Lease shall be paid by Tenant. Nothing herein
contained shall be deemed to require Tenant to pay or discharge any liens or
mortgages of any character whatsoever which may exist or hereafter be placed
upon the Project by an affirmative act or omission of Landlord.
3.6 PRE-COMMENCEMENT DATE CHARGES. From and after the delivery of the
Premises to Tenant and continuing until the Commencement Date, Tenant shall pay
to Landlord, as additional rent and within thirty (30) days following receipt of
an invoice therefor, all water and utility charges for the Project.
4. COMMON AREA; OPERATING EXPENSES.
4.1 DEFINITION OF COMMON AREA. The term "COMMON AREA," as used in this
Lease means all areas and the improvements thereon within the exterior
boundaries of the Project now or later made available for the general use of
Landlord, Tenant and other persons entitled to occupy floor area in the Project
and their customers, including, without limitation, the parking facilities of
the Project, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, driveways, landscaped areas, and similar areas and
facilities situated within the Project which are not reserved for the exclusive
use of any Project occupants and the exterior surfaces and roofs of all
buildings (including the Building) located within the Project. Common Area shall
not include (i) the entryway to a tenant's premises, (ii) any improvements
installed by a tenant outside of its premises, whether with or without
Landlord's knowledge or consent, or (iii) any areas or facilities that are
included in the description of premises leased to a tenant, but Common Area
shall include the ground floor entryway threshold, ground floor lobby, elevators
and all stairwells (except the middle stairwell).
4.2 MAINTENANCE AND USE OF COMMON AREA. The manner in which the Common Area
shall be maintained shall be solely determined by Landlord, but shall be
consistent with the standard of such space in similar office and research and
development projects in the vicinity. If any owner or tenant of any portion of
the Project maintains Common Area located upon its parcel or demised premises
(Landlord shall have the right in its sole discretion to allow any purchaser or
tenant to so maintain Common Area located upon its parcel or demised premises
and to be excluded from participation in the payment of Common Area Expenses as
provided below), Landlord shall not have any responsibility for the maintenance
of that portion of the Common Area and Tenant shall have no claims against
Landlord arising out of any failure of such owner or tenant to so maintain its
portion of the Common Area. The use and occupancy by Tenant of the Premises
shall include the right to use the Common Area (except areas used in the
maintenance or operation of the Project), in common with Landlord and other
tenants of the Project and their customers and invitees, subject to (i) any
covenants, conditions and restrictions now or hereafter of record (the
"DECLARATION"), and (ii) such reasonable, non-discriminatory rules and
regulations concerning the Project as may be established by Landlord from time
to time including, without limitation, the Rules and Regulations attached hereto
as Exhibit "E". Tenant agrees to promptly comply with all such rules and
regulations and any reasonable, non-discriminatory amendments thereto upon
receipt of written notice from Landlord. Notwithstanding anything herein to the
contrary, Landlord agrees that the Rules and Regulations attached to this Lease
as Exhibit "E" shall not be modified or added to by Landlord in such a way as to
unreasonably interfere with Tenant's permitted use of the Premises as set forth
in this Lease.
4.3 CONTROL OF AND CHANGES TO COMMON AREA. Landlord shall have the sole and
exclusive control of the Common Area, as well as the right to make reasonable
changes to the Common Area. Provided Landlord does not materially interfere with
Tenant's use of and access to the Premises, Landlord's rights shall include, but
not be limited to, the right to
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<PAGE> 8
(a) restrain the use of the Common Area by unauthorized persons; (b) cause
Tenant to remove or restrain persons from any unauthorized use of the Common
Area if they are using the Common Area by reason of Tenant's presence in the
Project; (c) utilize from time to time any portion of the Common Area for
promotional, entertainment, and related matters; (d) temporarily close any
portion of the Common Area for repairs, improvements or alterations, to
discourage non-customer use, to prevent public dedication or an easement by
prescription from arising, or for any other reason deemed appropriate in
Landlord's judgment; and (e) reasonably change the shape and size of the Common
Area, add, eliminate or change the location of improvements to the Common Area,
including, without limitation, buildings, lighting, parking areas, landscaped
areas, roadways, walkways, drive aisles and curb cuts.
4.4 OPERATING EXPENSES. Throughout the Term of this Lease, commencing on
the Commencement Date, Tenant agrees to pay Landlord as additional rent in
accordance with the terms of this Section 4, Tenant's Share of Operating
Expenses for the taxes and insurance for the Project and for all costs and
expenses for the operation, maintenance, repair, and replacement of the Project
including, without limitation: (i) any form of real property tax, assessment,
license fee, license tax, business license fee, commercial rental tax, levy,
charge, improvement bond or similar imposition of any kind or nature imposed by
any authority having the direct power to tax, including any city, county, state
or federal government, or any school, agricultural, lighting, drainage or other
improvement or special assessment district thereof; (ii) any and all assessments
under any covenants, conditions and restrictions affecting the Project; (iii)
water, sewer and other utility charges; (iv) costs of insurance obtained by
Landlord pursuant to Section 21 of this Lease; (v) waste disposal and janitorial
services; (vi) security; (vii) labor; (viii) management costs including, without
limitation: (A) wages and salaries (and payroll taxes and similar charges ) of
property management employees, and (B) management office rental, supplies,
equipment and related operating expenses and commercially reasonable
management/administrative fees; (ix) supplies, materials, equipment and tools
including rental of personal property; (x) repair and maintenance of the
structural portions of the buildings within the Project, including the plumbing,
heating, ventilating, air-conditioning and electrical systems installed or
furnished by Landlord; (xi) maintenance, sweeping, repairs, resurfacing, and
upkeep of all parking and other Common Areas; (xii) amortization on a straight
line basis over the useful life [together with interest at the Interest Rate on
the unamortized balance] of all capitalized expenditures which are: (A)
reasonably intended to produce a reduction in operating charges or energy
consumption; or (B) required under any governmental law or regulation that was
not applicable to the Project as of the Commencement Date (however, if such
expenditure by Landlord is required solely due to Tenant's particular use,
occupancy or alteration of the Premises, then regardless of when such law or
regulation became in effect, Tenant shall be responsible for all of such
expenditure); or (C) for replacement or restoration of any Project equipment
and/or improvements needed to operate and/or maintain the Project at the same
quality levels as prior to the replacement or restoration; (xiii) gardening and
landscaping; (xiv) maintenance of signs (other than signs of tenants of the
Project); (xv) personal property taxes levied on or attributable to personal
property used in connection with the Common Areas; (xvi) reasonable accounting,
audit, verification, legal and other consulting fees; and (xvii) any other costs
and expenses of repairs, maintenance, painting, lighting, cleaning, and similar
items, including appropriate reserves.
Notwithstanding anything to the contrary in the definition of Operating Expenses
set forth in this Lease, Operating Expenses shall not include the following:
(a) depreciation on the Building and Project;
(b) interest, principal, points and fees on debt or amortization on any
mortgages and deeds of trust or other debt instruments secured by the
Building or the Project or any underlying ground lease;
(c) costs of repairs and general maintenance paid from insurance proceeds
but excluding the amount of any deductibles paid by Landlord;
(d) repairs and replacements covered by warranties or guaranties (to the
extent actually collected by Landlord); and the cost of any repairs,
alterations and additions made to rectify or correct any major defects
or significant design errors relating to the initial design or
construction of the Building and Project;
(e) costs of items considered capital repairs, replacements, improvements
and equipment under generally accepted accounting principles
consistently applied except for those items expressly permitted in
clause (xii) above;
(f) costs of special services rendered to individual tenants (including
Tenant) for which a special charge is made to the tenant(s) receiving
such special services;
(g) costs of improvements for other tenants in the Building or Project;
(h) costs of the Landlord for which a tenant is obligated to separately
reimburse Landlord (as opposed to reimbursement of a pro rata share
thereof as an Operating Expense), including, for example, taxes and
property insurance premiums on improvements for tenants of the Building
and Project that are above the building standard;
(i) costs incurred by Landlord in connection with the enforcement of the
terms and conditions of any lease in the Building or Project;
(j) all costs, expenses, penalties, damages, fines and judgments from any
investigation, site monitoring, containment, cleanup, removal,
restoration or other remedial work of any kind or nature required under
any local, state or federal law or regulation, any judicial order, or
by any governmental or nongovernmental entity or person as a result of
or in connection with any Hazardous Material or Hazardous Materials
contamination;
(k) Landlord's general corporate overhead and general and administrative
expenses;
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<PAGE> 9
(l) Marketing costs, including, without limitation, leasing commissions,
attorneys' fees, space planning costs and other costs and expenses
incurred in connection with the leasing of the Building or Project; and
(m) Overhead and profit increment paid to Landlord and Landlord's
subsidiaries for goods and/or services in or to the Building or Project
to the extent the same exceeds the costs of such goods and/or services
rendered by unaffiliated third parties on a competitive basis.
4.5 TENANT'S MONTHLY OPERATING EXPENSE CHARGE. From and after the
Commencement Date, Tenant shall pay to Landlord, on the first day of each
calendar month during the Term of this Lease, Tenant's share of an amount
estimated by Landlord to be the Monthly Operating Expenses for the Project for
that month ("TENANT'S MONTHLY OPERATING EXPENSE CHARGE").
4.6 ESTIMATE STATEMENT. Prior to the Commencement Date and on or about
March 1st of each subsequent calendar year during the Term of this Lease,
Landlord will endeavor to deliver to Tenant a statement ("ESTIMATE STATEMENT")
wherein Landlord will estimate both the Operating Expenses and Tenant's Monthly
Operating Expense Charge for the then current calendar year. Tenant agrees to
pay Landlord, as additional rent, Tenant's estimated Monthly Operating Expense
Charge each month thereafter, beginning with the next installment of rent due,
until such time as Landlord issues a revised Estimate Statement or the Estimate
Statement for the succeeding calendar year; except that, concurrently with the
regular monthly rent payment next due following the receipt of each such
Estimate Statement, Tenant agrees to pay Landlord an amount equal to one monthly
installment of Tenant's estimated Monthly Operating Expense Charge (less any
applicable Operating Expenses already paid) multiplied by the number of months
from January, in the current calendar year, to the month of such rent payment
next due, all months inclusive. If at any time during the Term of this Lease,
but not more often than quarterly, Landlord reasonably determines that Tenant's
Share of Operating Expenses for the current calendar year will be greater than
the amount set forth in the then current Estimate Statement, Landlord may issue
a revised Estimate Statement and Tenant agrees to pay Landlord, within ten (10)
days of receipt of the revised Estimate Statement, the difference between the
amount owed by Tenant under such revised Estimate Statement and the amount owed
by Tenant under the original Estimate Statement for the portion of the then
current calendar year which has expired. Thereafter Tenant agrees to pay
Tenant's Monthly Operating Expense Charge based on such revised Estimate
Statement until Tenant receives the next calendar year's Estimate Statement or a
new revised Estimate Statement for the current calendar year.
4.7 ACTUAL STATEMENT. By March 1st of each calendar year during the Term of
this Lease, Landlord will also endeavor to deliver to Tenant a statement
("ACTUAL STATEMENT") which states Tenant's Share of the actual Operating
Expenses for the preceding calendar year. If the Actual Statement reveals that
Tenant's Share of the actual Operating Expenses is more than the total
Additional Rent paid by Tenant for Operating Expenses on account of the
preceding calendar year, Tenant agrees to pay Landlord the difference in a lump
sum within ten (10) days of receipt of the Actual Statement. If the Actual
Statement reveals that Tenant's Share of the actual Operating Expenses is less
than the Additional Rent paid by Tenant for Operating Expenses on account of the
preceding calendar year, Landlord will credit any overpayment toward the next
monthly installment(s) of Tenant's Share of the Operating Expenses due under
this Lease. Such obligation will be a continuing one which will survive the
expiration or earlier termination of this Lease. Prior to the expiration or
sooner termination of the Lease Term and Landlord's acceptance of Tenant's
surrender of the Premises, Landlord will have the right to estimate the actual
Operating Expenses for the then current Lease Year and to collect from Tenant
prior to Tenant's surrender of the Premises, Tenant's Percentage of any excess
of such actual Operating Expenses over the estimated Operating Expenses paid by
Tenant in such Lease Year.
4.8 MISCELLANEOUS. Any delay or failure by Landlord in delivering any
Estimate Statement or Actual Statement pursuant to this Section 4 will not
constitute a waiver of its right to require an increase in additional rent for
Operating Expenses nor will it relieve Tenant of its obligations pursuant to
this Section 4, except that Tenant will not be obligated to make any payments
based on such Estimate Statement or Actual Statement until ten (10) days after
receipt of such Estimate Statement or Actual Statement. If Tenant does not
object to any Actual Statement within ninety (90) days after Tenant receives any
such statement, such statement will be deemed final and binding on Tenant. Even
though the Term has expired and Tenant has vacated the Premises, when the final
determination is made of Tenant's Share of the actual Operating Expenses for the
year in which this Lease terminates, Tenant agrees to promptly pay any increase
due over the estimated expenses paid and, conversely, any overpayment made in
the event said expenses decrease shall promptly be rebated by Landlord to
Tenant. Such obligation will be a continuing one which will survive the
expiration or termination of this Lease. Prior to the expiration or sooner
termination of the Lease Term and Landlord's acceptance of Tenant's surrender of
the Premises, Landlord will have the right to estimate the actual Operating
Expenses for the then current Lease Year and to collect from Tenant prior to
Tenant's surrender of the Premises, Tenant's Share of any excess of such actual
Operating Expenses over the estimated Operating Expenses paid by Tenant in such
Lease Year.
4.9 BOOKS AND RECORDS; AUDIT. Landlord shall maintain books and records of
the Operating Expenses in accordance with sound accounting and management
practices. If Tenant wishes to audit the amount of Operating Expenses or any
component thereof as to a particular year, Tenant must deliver to Landlord
written notice of Tenant's desire to audit Landlord's books and records ("AUDIT
NOTICE"). Such audit will be conducted (i) within sixty (60) days following
delivery of the Audit Notice, (ii) during normal business hours at Landlord's
business offices or at the management office of the Building; (iii) on
consecutive business days until completed; (iv) in an expeditious manner so as
to minimize interference with Landlord's books and records at Tenant's sole cost
and expense; and (v) by an auditor reasonably acceptable to Landlord and Tenant
(without limiting other reasons, it will be reasonable for Landlord to
disapprove an auditor on the basis that the auditor is paid on a contingency fee
basis). Tenant shall pay in a timely manner as required by this Lease any
amounts stated as due on the Actual Statement, provided that such payment shall
not waive any right to audit and/or dispute by Tenant as set forth herein.
Tenant agrees to deliver to Landlord the results of any such audit within ninety
(90) days of completion of the audit. If Tenant does not deliver an Audit Notice
as to any Actual Statement within the time frames set forth hereinabove, then
such Actual Statement will be conclusively binding on Tenant.
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If Tenant's audit reveals that Landlord has overcharged Tenant, then within
thirty (30) days after the results of such audit are made available to Landlord,
Landlord shall reimburse Tenant the amount of such overcharge. If the audit
reveals that Tenant was undercharged, then within thirty (30) days after the
results of the audit are made available to Tenant, Tenant shall reimburse
Landlord the amount of such undercharge. Tenant shall pay the cost of such
audit, provided that if the audit reveals that Landlord's determination of
Tenant's Share of Operating Expenses as set forth in an Actual Statement was in
error in Landlord's favor by more than five percent (5%) of the amount paid by
Tenant prior to delivering the Audit Notice, then Landlord shall pay the
reasonable, third-party cost of such audit incurred by Tenant within thirty (30)
days of demand by Tenant. To the extent Landlord must pay the cost of such
audit, such cost shall not exceed a reasonable hourly charge for a reasonable
amount of hours spent by such third-party in connection with the audit. Landlord
shall not be liable for any contingency fee payments to any consultants of
Tenant. Tenant agrees to keep the results of the audit and any settlement
resulting therefrom confidential and will cause its agents, employees and
contractors to keep the same confidential.
5. SECURITY DEPOSIT.
5.1 DELIVERY OF LETTER OF CREDIT. Within ten (10) days following the
delivery of the Premises to Tenant ("LC DELIVERY DATE"), and again within ten
(10) days following the date Landlord gives Tenant written notice that Landlord
has disbursed $1,250,000.00 of the Construction Allowance (the "INCREASE DATE"),
Tenant shall deliver to Landlord the Security Deposit in the form of an
unconditional, irrevocable and renewable letter of credit ("LETTER OF CREDIT")
in favor of Landlord in form and issued by a bank with an office (capable of
honoring a demand on the Letter of Credit) located in Orange County or San Diego
County, California, reasonably satisfactory to Landlord, in the applicable
principal amount specified in Section 5.2 below, as security for the faithful
performance and observance by Tenant of the terms, provisions and conditions of
this Lease. The Letter of Credit shall state that an authorized officer or other
representative of Landlord may make demand on Landlord's behalf for the amount
owed by Tenant to Landlord, and that the issuing bank must immediately honor
such demand, without qualification or satisfaction of any conditions, except the
proper identification of the party making such demand and a certification that
Tenant is in default under this Lease, which default is continuing after notice
and expiration of any applicable grace period required by this Lease. In
addition, the Letter of Credit shall indicate that it is transferable in its
entirety by Landlord as beneficiary and that upon receiving written notice of
transfer, and upon presentation to the issuer of the original Letter of Credit,
the issuer will reissue the Letter of Credit naming such transferee as the
beneficiary. If the term of the Letter of Credit held by Landlord will expire
prior to the last day of the Term and it is not extended, or a new Letter of
Credit for an extended period of time is not substituted, within thirty (30)
days prior to the expiration of the Letter of Credit, then Landlord may deliver
written notice of such fact to Tenant and if Tenant does not extend the Letter
of Credit or substitute a new Letter of Credit within ten (10) days after
Tenant's receipt of such notice from Landlord, Landlord shall be entitled to
make demand for the principal amount of said Letter of Credit and, thereafter,
to hold such funds in accordance with Section 5.3 below. Tenant may, at any
time, substitute the Letter of Credit by delivering to Landlord cash in the
amount of the required principal of the Letter of Credit.
5.2 INCREASE AND REDUCTION IN PRINCIPAL AMOUNT OF LETTER OF CREDIT. The
principal amount of the Letter of Credit shall be as follows:
<TABLE>
<CAPTION>
REQUIRED
PORTION OF TERM PRINCIPAL AMOUNT
<S> <C>
LC Delivery Date - Increase Date` $1,250,000.00
Increase Date - Initial Reduction Date $2,500,000.00
First year following Initial Reduction Date $1,000,000.00
Second year following Initial Reduction Date $666,666.00
Third Year following Initial Reduction Date $333,333.00
Remaining Term Equal to then-current
Monthly Basic Rent
</TABLE>
The "INITIAL REDUCTION DATE" shall be the date that the satisfaction of the
conditions described in clause (a) below and either of clauses (b) and (c) below
occur:
(a) Tenant's receipt of payment from Eli Lilly ("LILLY") and Bristol Myers
Squibb ("BMS") upon Acceptance by each company of the Automated Storage
and Retrieval module for the Ultra-High Throughput Screening System.
Evidence of payment will be provided by Tenant and will include a copy
of the check or wire transfer notification and written confirmation by
Lilly and BMS that such payment is made for Acceptance of the Automated
Storage and Retrieval module. "Acceptance" is defined per existing
contract language with BMS and Lilly, which Tenant represents and
warrants to Landlord is accurately described as follows:
(i) BMS: When BMS has determined that all Deliverables for the
Automated Storage and Retrieval Module have successfully
conformed to or satisfied the Specifications in all material
respects, BMS shall give Aurora written notice thereof
("ACCEPTANCE"), in which event BMS shall become obligated to
pay such amounts as triggered under this Agreement as a result
hereof.
(ii) LILLY: When the LILLY UHTSS Steering Committee has determined
that the Automated Storage and Retrieval module meet the
Specifications for such module. Upon Completion (Acceptance)
of the Automated Storage and retrieval module at Lilly, Aurora
shall give Lilly written notice and Lilly shall become
obligated to pay such amounts provided for in the agreement.
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(b) Tenant's entering into an agreement with another major pharmaceutical
company that is similar in scope and nature to Tenant's existing
agreements with BMS and Eli Lilly concerning the production of Tenant's
Ultra-HTS system.
(c) Completion of an initial public offering of securities in Tenant traded
on a United States stock exchange raising at least Ten Million Dollars
($10,000,000.00) in equity.
Notwithstanding the foregoing, if as of the applicable reduction date set forth
above, (i) Tenant is in material default under this Lease, or (ii) Landlord has
given Tenant written notice that circumstances exist that would, with notice or
lapse of time, or both, constitute a material default, then the principal amount
shall not be reduced, unless and until such default or circumstances shall have
been fully cured, at which time the principal amount may be reduced as
hereinabove described.
5.3 APPLICATION OF LETTER OF CREDIT. The Letter of Credit shall be held by
Landlord as security for the faithful performance by Tenant of all of the terms,
covenants and conditions of this Lease. If Tenant commits a default with respect
to any provision of this Lease, Landlord may (but shall not be required to) draw
upon the Letter of Credit and use, apply or retain all or any part of the
proceeds for the payment of any sum which is in default, or for the payment of
any other amount which Landlord may spend or become obligated to spend by reason
of Tenant's default or to compensate Landlord for any loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of the Letter
of Credit is so used or applied, Tenant shall, within ten (10) days after demand
therefor, post an additional Letter of Credit in an amount sufficient to restore
the Letter of Credit to the principal amount required under Section 5.2 above.
Landlord shall not be required to keep any proceeds from the Letter of Credit
separate from its general funds and Tenant shall not be entitled to any interest
on such proceeds. Should Landlord sell its interest in the Premises during the
Term and if Landlord deposits with the purchaser thereof the Letter of Credit or
any proceeds of the Letter of Credit, thereupon Landlord shall be discharged
from any further liability with respect to the Letter of Credit and said
proceeds.
6. USE.
6.1 GENERAL. Tenant shall use the Premises solely for the Permitted Use
specified in Section 1.12 of the Summary, and shall not use or permit the
Premises to be used for any other use or purpose whatsoever without Landlord's
consent, which shall not be unreasonably withheld. Tenant shall observe and
comply with the "Rules and Regulations" attached hereto as Exhibit "E", and all
reasonable non-discriminatory modifications thereof and additions thereto from
time to time put into effect and furnished to Tenant by Landlord. Landlord shall
endeavor to uniformly enforce the Rules and Regulations, but shall have no
liability to Tenant for the violation or non-performance by any other tenant or
occupant of the Project of any such Rules and Regulations. Tenant shall, at its
sole cost and expense, observe and comply with all requirements of any board of
fire underwriters or similar body relating to the Premises, and all laws,
statutes, codes, rules and regulations now or hereafter in force relating to or
affecting the use, occupancy, alteration or improvement (whether structural or
non-structural) of the Premises, including, without limitation, the provisions
of Title III of the Americans with Disabilities Act of 1990 as it pertains to
Tenant's use, occupancy, improvement and alteration of the Premises. Tenant
shall not use or allow the Premises to be used (a) in violation of the
Declaration or any other recorded covenants, conditions and restrictions
affecting the Project or of any law or governmental rule or regulation, or of
any certificate of occupancy issued for the Premises or the Building, or (b) for
any improper, immoral, unlawful or reasonably objectionable purpose. Tenant
shall not do or permit to be done anything which will obstruct or unreasonably
interfere with the rights of other tenants or occupants of the Project, or
injure or annoy them. Tenant shall not cause, maintain or permit any nuisance
in, on or about the Premises, the Building or the Project, nor commit or suffer
to be committed any waste in, on or about the Premises. Tenant and Tenant's
employees and agents shall not solicit business in the Common Area, nor shall
Tenant distribute any handbills or other advertising matter in the Common Area.
Notwithstanding the foregoing or anything to the contrary contained in this
Lease, Tenant shall not be responsible for compliance with any laws, statutes,
codes, ordinances, rules, regulations or other governmental directives
(collectively, "APPLICABLE LAWS") where such compliance is not specifically
related to or required by Tenant's particular use, occupancy or alteration of
the Premises. For example, if any governmental authority should require the
Building or the Premises to be structurally strengthened against earthquake, or
should require the removal of asbestos from the Premises and such measures are
imposed as a general requirement applicable to all tenants rather than as a
condition to or a result of Tenant's particular use, occupancy or alteration of
the Premises, such work shall be performed by and (except to the extent such
cost is a permissible Operating Expense) at the sole cost of Landlord.
6.2 PARKING. Tenant and its employees shall park their vehicles only in
those portions of the Common Area from time to time designated for such purpose
by Landlord. Subject to Sections 18 and 19, Landlord shall maintain a parking
ratio at the Project of at least 3.5 spaces per 1000 rentable square feet of
leased space at the Project, and shall designate five (5) spaces near the front
entrance of the Building for use by visitors of the Building. The use of the
parking area shall be subject to the Parking Rules and Regulations attached
hereto as Exhibit "E" and any other reasonable, non-discriminatory rules and
regulations adopted by Landlord from time to time. Tenant shall be responsible
for ensuring that its employees comply with all the provisions of this Section
and such other parking rules and regulations as may be adopted and implemented
by Landlord from time to time.
6.3 SIGNS, AWNINGS AND CANOPIES. Tenant will not place or suffer to be
placed or maintained on the roof or on any exterior door, wall or window (or
within 48 inches of any window) of the Premises any sign, awning or canopy, or
advertising matter on the glass of any window or door of the Premises without
Landlord's prior written consent which shall not be unreasonably withheld.
Tenant agrees to maintain any such sign, awning, canopy, decoration, lettering
or advertising matter as may be approved by Landlord in good condition and
repair at all times. At the expiration or earlier termination of this Lease, at
Landlord's election, Tenant shall remove all signs, awnings, canopies,
decorations, lettering and advertising and shall repair any damage to the
Building, the Premises or the Project resulting therefrom all at Tenant's sole
cost and expense. If Tenant fails to maintain any such approved sign, awning,
decoration, lettering, or advertising, Landlord may do so and Tenant shall
reimburse Landlord for such cost. If, without Landlord's prior written
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consent, Tenant installs any sign, awning, decoration, lettering or advertising,
or fails to remove any such item(s) at the expiration or earlier termination of
this Lease, Landlord may have such item(s) removed and stored and may repair any
damage to the Building, the Premises or the Project at Tenant's expense. The
removal, repair and/or storage costs shall bear interest until paid at the
maximum rate allowed by law.
Notwithstanding the foregoing, Tenant shall have the non-exclusive right to
place its name on the monument sign at the Project and the non-exclusive right
to place its name on a sign on the Building, all in compliance with applicable
laws and subject to Landlord's reasonable approval. Subject to compliance with
all applicable laws and Landlord's reasonable approval, Tenant may replace the
existing monument sign with a larger one, and upon the lien-free completion
thereof Landlord will reimburse Tenant one-third (1/3) of the pre-approved
actual costs thereof. Tenant's signage on the monument sign will be in a
priority position over other tenants of the Project. Tenant's rights under this
paragraph shall be personal to Tenant and any Permitted Transferee.
6.4 HAZARDOUS MATERIALS.
(a) Except for ordinary and general office supplies, such as copier toner,
liquid paper, glue, ink and common household cleaning materials (some
or all of which may constitute "Hazardous Materials" as defined in this
Lease), Tenant agrees not to cause or permit any Hazardous Materials to
be brought upon, stored, used, handled, generated, released or disposed
of on, in, under or about the Premises, the Building, the Common Areas
or any other portion of the Project by Tenant, its agents, employees,
subtenants, assignees, licensees, contractors or invitees
(collectively, "TENANT'S PARTIES"), without the prior written consent
of Landlord, which consent Landlord may withhold in its sole and
absolute discretion. Concurrently with the execution of this Lease,
Tenant agrees to complete and deliver to Landlord an Environmental
Questionnaire in the form of Exhibit "G" attached hereto. Upon the
expiration or earlier termination of this Lease, Tenant agrees to
promptly remove from the Premises, the Building and the Project, at its
sole cost and expense, any and all Hazardous Materials, including any
equipment or systems containing Hazardous Materials which are
installed, brought upon, stored, used, generated or released upon, in,
under or about the Premises, the Building and/or the Project or any
portion thereof by Tenant or any of Tenant's Parties. To the fullest
extent permitted by law, Tenant agrees to promptly indemnify, protect,
defend and hold harmless Landlord and Landlord's partners, officers,
directors, employees, agents, successors and assigns (collectively,
"LANDLORD INDEMNIFIED PARTIES") from and against any and all claims,
damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs (including, without limitation,
clean-up, removal, remediation and restoration costs, sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees
and court costs) which arise or result from the presence of Hazardous
Materials on, in, under or about the Premises, the Building or any
other portion of the Project and which are caused or permitted by
Tenant or any of Tenant's Parties. Tenant agrees to promptly notify
Landlord of any release of Hazardous Materials in the Premises, the
Building or any other portion of the Project which Tenant becomes aware
of during the Term of this Lease, whether caused by Tenant or any other
persons or entities. In the event of any release of Hazardous Materials
caused or permitted by Tenant or any of Tenant's Parties, Landlord
shall have the right, but not the obligation, to cause Tenant to
immediately take all steps Landlord deems necessary or appropriate to
remediate such release and prevent any similar future release to the
satisfaction of Landlord. At all times during the Term of this Lease,
Landlord will have the right, but not the obligation, to enter upon the
Premises to inspect, investigate, sample and/or monitor the Premises to
determine if Tenant is in compliance with the terms of this Lease
regarding Hazardous Materials. As used in this Lease, the term
"HAZARDOUS MATERIALS" shall mean and include any hazardous or toxic
materials, substances or wastes as now or hereafter designated under
any law, statute, ordinance, rule, regulation, order or ruling of any
agency of the State, the United States Government or any local
governmental authority, including, without limitation, asbestos,
petroleum, petroleum hydrocarbons and petroleum based products, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), and
freon and other chlorofluorocarbons. The provisions of this Section 6.4
will survive the expiration or earlier termination of this Lease.
(b) Landlord represents and warrants to Tenant that as of the date of this
Lease and to Landlord's actual knowledge and except as disclosed in
that certain Phase 1 dated December 18, 1996, prepared by Dames & Moore
(i) there are no Hazardous Materials in, on, under, below or otherwise
located on or about the Premises in violation of applicable law, and
(ii) there has been no release or migration of any Hazardous Materials
in violation of applicable law onto, beneath, upon or about the
Premises.
(c) Notwithstanding the foregoing, Landlord consents to the storage and use
at the Premises, and disposal from the Premises, of certain Hazardous
Materials upon the following conditions:
(i) The Hazardous Materials are only those materials that are
necessary from time to time for the initial Permitted Use
described in Section 1.12 of the Summary;
(ii) The storage, use and disposal of the Hazardous Materials
complies with all applicable laws, and Tenant provides to
Landlord promptly following the preparation thereof a copy of
Tenant's quarterly injury and illness prevention program
inspection (which inspection Tenant agrees to perform on at
least a quarterly basis);
(iii) The storage, use and disposal of the Hazardous Materials does
not result in objectionable odors or health hazards to other
tenants or occupants of the Project;
(iv) Tenant obtains and maintains all permits and approvals
necessary for the storage, use and disposal of the Hazardous
Materials;
(v) Tenant has not assigned this Lease to any third party (other
than to a Permitted Transferee);
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<PAGE> 13
(vi) On the first day of each calendar year during the Term, Tenant
shall deliver to Landlord a disclosure statement containing
the following:
(1) A list containing all Hazardous Materials and the
quantities thereof stored, used or disposed from the
Premises during the preceding calendar year;
(2) A statement that (A) the use, storage and disposal of
such Hazardous Materials complies with all applicable
laws, (B) Tenant has all necessary permits and
approvals for the use, storage and disposal thereof,
and (C) identifies the method of disposal of such
Hazardous Materials; and
(3) Copies of all necessary permits and approvals
relating to the use, storage and disposal of such
Hazardous Materials to the extent not previously
delivered to Landlord;
(vii) Tenant shall immediately advise Landlord in writing of, and
provide Landlord a copy of:
(1) Any notice of violation or potential or alleged
violation of any law concerning Hazardous Materials
received by Tenant from any governmental agency;
(2) Any and all inquiry, investigation, enforcement,
clean-up, removal or governmental or regulatory
actions instituted or threatened relating to Tenant
or the Premises; and
(3) All claims made or threatened by any third party
against Tenant or the Premises relating to any
Hazardous Materials.
(viii) The provisions of this subparagraph (c) shall not apply to the
storage, use and disposal of Hazardous Materials by a
subtenant, unless the subtenant is a Permitted Transferee.
In the event any of the preceding conditions are not satisfied, Tenant shall
immediately cease the use, storage and disposal of Hazardous Materials until all
such conditions are satisfied. Landlord's consent to the use, storage and
disposal of such Hazardous Materials shall not constitute an assumption of the
risk respecting the same and Tenant shall indemnify, protect, defend and hold
the Landlord Indemnified Parties harmless from and against the same as required
by this Section 6.4.
6.5 REFUSE AND SEWAGE. Tenant agrees not to keep any trash, garbage, waste
or other refuse on the Premises except in sanitary containers and agrees to
regularly and frequently remove same from the Premises. Tenant shall keep all
containers or other equipment used for storage of such materials in a clean and
sanitary condition. Tenant shall properly dispose of all sanitary sewage and
shall not use the sewage disposal system for the disposal of anything except as
permitted by law. Tenant shall keep the sewage disposal system free of all
obstructions and in good operating condition. If the volume of Tenant's trash
becomes excessive in Landlord's judgment, Landlord shall have the right to
charge Tenant for additional trash disposal services and/or to require that
Tenant contract directly for additional trash disposal services at Tenant's sole
cost and expense.
6.6 PEST CONTROL. Tenant shall, at its own cost, retain a licensed, bonded
professional pest and sanitation control service to perform inspections of the
Premises as needed for the purpose of eliminating infestation by and controlling
the presence of insects, rodents and vermin and shall promptly cause any
corrective or extermination work recommended by such service to be performed.
Such work shall be performed pursuant to a written contract, a copy of which
shall be delivered to Landlord by Tenant upon request.
6.7 EXTRAORDINARY SERVICES. If Landlord incurs Operating Expenses or other
costs for any increase in services provided to or for the benefit of Tenant
above those services normally provided by Landlord to the other tenants in the
Project and such increased services or costs result from any act, conduct,
extraordinary use and/or special request by Tenant or its employees or
customers, Tenant agrees to reimburse Landlord for the costs of such
extraordinary services, within thirty (30) days of delivery to Tenant of written
invoice for such extraordinary services. By way of example only, if Tenant
should request or if Tenant's business operation should require extraordinary
security services, lighting, cleaning and/or repair, such extraordinary services
may be billed directly to Tenant as provided in this Section 6.7 and shall be
reimbursed by Tenant to Landlord as provided herein.
7. PAYMENTS AND NOTICES. All rent and other sums payable by Tenant to
Landlord hereunder shall be paid to Landlord at the address designated in
Section 1.1 of the Summary, or to such other persons and/or at such other places
as Landlord may hereafter designate in writing. Any notice required or permitted
to be given hereunder must be in writing and may be given by personal delivery
(including delivery by nationally recognized overnight courier or express
mailing service), or by registered or certified mail, postage prepaid, return
receipt requested, addressed to Tenant at the address(es) designated in Section
1.2 of the Summary, or to Landlord at the address(es) designated in Section 1.1
of the Summary. Either party may, by written notice to the other, specify a
different address for notice purposes.
8. BROKERS. The parties recognize that the broker(s) who negotiated this
Lease are stated in Section 1.13 of the Summary, and agree that Landlord shall
be solely responsible for the payment of brokerage commissions to said
broker(s), and that Tenant shall have no responsibility therefor unless written
provision to the contrary has been made. Each party represents and warrants to
the other, that, to its knowledge, no other broker, agent or finder (a)
negotiated or was instrumental in negotiating or consummating this Lease on its
behalf, and (b) is or might be entitled to a commission or compensation in
connection with this Lease. Any broker, agent or finder of Tenant whom Tenant
has failed to disclose herein shall be paid by Tenant. Tenant shall indemnify,
protect, defend (by counsel reasonably approved in writing by Landlord) and hold
Landlord harmless from and against any and all claims, judgments, suits, causes
of action, damages, losses, liabilities and expenses (including attorneys' fees
and court costs) resulting from any breach by Tenant of the foregoing
representation, including, without limitation, any claims that may be asserted
against Landlord by any broker,
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<PAGE> 14
agent or finder undisclosed by Tenant herein. Landlord shall indemnify, protect,
defend (by counsel reasonably approved in writing by Tenant) and hold Tenant
harmless from and against any and all claims, judgments, suits, causes of
action, damages, losses, liabilities and expenses (including attorneys' fees and
court costs) resulting from any breach by Landlord of the foregoing
representation, including, without limitation, any claims that may be asserted
against Tenant by any broker, agent or finder undisclosed by Landlord herein.
The foregoing indemnities shall survive the expiration or earlier termination of
this Lease.
9. SURRENDER; HOLDING OVER.
9.1 SURRENDER OF PREMISES. Upon the expiration or sooner termination of
this Lease, Tenant shall surrender all keys for the Premises to Landlord, and
Tenant shall deliver exclusive possession of the Premises to Landlord broom
clean and in good condition and repair, reasonable wear and tear and casualty
damage excepted), with all of Tenant's personal property (and those items, if
any, of Tenant Improvements and Tenant Changes identified by Landlord pursuant
to Section 12.2 below) removed therefrom and all damage caused by such removal
repaired, as required pursuant to Sections 12.2 and 12.3 below. If, for any
reason, Tenant fails to surrender the Premises on the expiration or earlier
termination of this Lease (including upon the expiration of any subsequent
month-to-month tenancy consented to by Landlord pursuant to Section 9.2 below),
with such removal and repair obligations completed, then, in addition to the
provisions of Section 9.3 below and Landlord's rights and remedies under Section
12.4 and the other provisions of this Lease, Tenant shall indemnify, protect,
defend (by counsel reasonably approved in writing by Landlord) and hold Landlord
harmless from and against any and all claims, judgments, suits, causes of
action, damages, losses, liabilities and expenses (including reasonable
attorneys' fees and court costs) resulting from such failure to surrender,
including, without limitation, any claim made by any succeeding tenant based
thereon. The foregoing indemnity shall survive the expiration or earlier
termination of this Lease.
9.2 HOLDING OVER. If without Landlord's consent, Tenant holds over after
the expiration or earlier termination of the Lease Term, Tenant shall become a
tenant at sufferance only, upon the terms and conditions set forth in this Lease
so far as applicable (including Tenant's obligation to pay all Common Area
Expenses and any other additional rent under this Lease), but at a Monthly Basic
Rent equal to one hundred twenty-five percent (125%) of the Monthly Basic Rent
applicable to the Premises immediately prior to the date of such expiration or
earlier termination. Acceptance by Landlord of rent after such expiration or
earlier termination shall not constitute a consent to a hold over hereunder or
result in an extension of this Lease.
9.3 NO EFFECT ON LANDLORD'S RIGHTS. The foregoing provisions of this
Section 9 are in addition to, and do not affect, Landlord's right of re-entry or
any other rights of Landlord hereunder or otherwise provided at law or in
equity.
10. TAXES.
10.1 REAL PROPERTY TAXES. Tenant agrees to pay its pro rata share of all
general and special real property taxes, assessments (including, without
limitation, change in ownership taxes or assessments), liens, bond obligations,
license fees or taxes and any similar impositions in-lieu of other impositions
now or previously within the definition of real property taxes or assessments
(collectively "REAL PROPERTY TAXES") which may be levied or assessed by any
lawful authority against the Project applicable to the period from the
Commencement Date until the expiration or sooner termination of this Lease.
Tenant's pro rata share shall be apportioned according to the floor area of the
Premises as it relates to the total leasable floor area of the Building or
buildings located within the Project (including the Premises). Notwithstanding
the foregoing provisions, if the Real Property Taxes are not levied and assessed
against the entire Project by means of a single tax bill (i.e., if the Project
is separated into two (2) or more separate tax parcels for purposes of levying
and assessing the Real Property Taxes), then, at Landlord's option, Tenant shall
pay Tenant's pro rata share of all Real Property Taxes which may be levied or
assessed by any lawful authority against the land and improvements of the
separate tax parcel on which the Building containing the Premises is located.
Tenant's pro rata share under such circumstances shall be apportioned according
to the floor area of the Premises as it relates to the total leasable floor area
of the Building or buildings situated in the separate tax parcel in which the
Premises is located.
All Real Property Taxes for the tax year in which the Commencement Date occurs
and for the tax year in which this Lease terminates shall be apportioned and
adjusted so that Tenant shall not be responsible for any Real Property Taxes for
a period of time occurring prior to the Commencement Date or subsequent to the
expiration of the Term.
The amount to be paid pursuant to the provisions of this Section 10.1 shall be
paid monthly in advance as part of Tenant's Monthly Operating Expense Charge as
estimated by Landlord based on the most recent tax bills and estimates of
reappraised values (if reappraisal is to occur), commencing with the month (or
partial month on a prorated basis if such be the case) that the Commencement
Date occurs. The initial estimated monthly charge for Tenant's pro rata share of
Real Property Taxes is included in the Monthly Operating Expense Charge as
provided in Section 4.
If at any time during the Term under the laws of the United States, or the
state, county, municipality, or any political subdivision thereof in which the
Project is located, a tax or excise on rent or any other tax however described
is levied or assessed by any such political body against Landlord on account of
rent payable to Landlord hereunder or any tax based on or measured by
expenditures made by Tenant on behalf of Landlord, such tax or excise shall be
considered "Real Property Taxes" for purposes of this Section 10.1, and shall be
payable in full by Tenant. At Landlord's option, such taxes or excises shall be
payable monthly in advance on an estimated basis as provided in this Section
10.1 or shall be payable within ten (10) days after Tenant's receipt of the tax
bill therefor from Landlord.
10.2 PERSONAL PROPERTY TAXES. Tenant shall be liable for, and shall pay
before delinquency, all taxes and assessments (real and personal) levied against
(a) any personal property or trade fixtures placed by Tenant in or about the
Premises (including any increase in the assessed value of the Premises based
upon the value of any such personal property or trade fixtures); and (b) any
Tenant Improvements or alterations in the Premises (whether installed and/or
paid for by Landlord or Tenant). If any such taxes or assessments are levied
against Landlord or Landlord's property,
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<PAGE> 15
Landlord may, after written notice to Tenant (and under proper protest if
requested by Tenant) pay such taxes and assessments, and Tenant shall reimburse
Landlord therefor within ten (10) business days after demand by Landlord;
provided, however, Tenant, at its sole cost and expense, shall have the right,
with Landlord's cooperation, to bring suit in any court of competent
jurisdiction to recover the amount of any such taxes and assessments so paid
under protest.
10.3 TENANT'S PAYMENT OF CERTAIN TAX EXPENSES. Notwithstanding anything to
the contrary contained in this Lease, in the event that, at any time during the
initial Term, a change in ownership of the Project is consummated, and as a
result thereof, and to the extent that in connection therewith, the Project is
reassessed (the "REASSESSMENT") for real estate tax purposes by the appropriate
governmental authority pursuant to the terms of Proposition 13, then the terms
of this Section 10.3 shall apply to such Reassessment. This Section 10.3 shall
not apply during any Option Period.
(a) THE TAX INCREASE. For purposes of this Article 10, the term "TAX
INCREASE" shall mean that portion of the Real Property Taxes, as
calculated immediately following the Reassessment, which is
attributable solely to the Reassessment. Accordingly, the term Tax
Increase shall not include any portion of the Real Property Taxes, as
calculated immediately following the Reassessment, which (i) is
attributable to the initial assessment of the value of the Project,
(ii) is attributable to assessments which were pending immediately
prior to the Reassessment which assessments were conducted during, and
included in, such Reassessment, or which assessments were otherwise
rendered unnecessary following the Reassessment, or (iii) is
attributable to the annual inflationary increase of Real Property
Taxes.
(b) PROTECTION. Tenant shall be obligated to pay Tenant's pro rata share of
the first Tax Increase, but Tenant shall not be obligated to pay any
portion of any subsequent Tax Increase.
(c) LANDLORD'S RIGHT TO PURCHASE THE PROPOSITION 13 PROTECTION AMOUNT
ATTRIBUTABLE TO A PARTICULAR REASSESSMENT. The amount of Real Property
Taxes which Tenant is not obligated to pay or will not be obligated to
pay during the Term in connection with a particular Reassessment
pursuant to the terms of Section 10.3 shall be sometimes referred to
hereafter as a "PROPOSITION 13 PROTECTION AMOUNT." If the occurrence of
a Reassessment is reasonably foreseeable by Landlord and the
Proposition 13 Protection Amount attributable to such Reassessment can
be reasonably quantified or estimated for each year commencing with the
year in which the Reassessment will occur, the terms of this Section
10.3(c) shall apply to each such Reassessment. Upon notice to Tenant,
Landlord shall have the right to purchase the Proposition 13 Protection
Amount relating to the applicable Reassessment (the "APPLICABLE
REASSESSMENT"), at any time, by paying to Tenant an amount equal to the
"PROPOSITION 13 PURCHASE PRICE," as that term is defined below. As used
herein, "PROPOSITION 13 PURCHASE PRICE" shall mean the present value of
the Proposition 13 Protection Amount remaining during the Term, as of
the date of payment of the Proposition 13 Purchase Price by Landlord.
Such present value shall be calculated (i) by using the portion of the
Proposition 13 Protection Amount attributable to each remaining year
during the Term that such protection is available (as though the
portion of such Proposition 13 Protection Amount benefited Tenant at
the end of each year), as the amounts to be discounted, and (ii) by
using discount rates for each amount to be discounted equal to (A) the
prime interest rate, as reported in the Wall Street Journal as of the
date of Landlord's exercise of its right to purchase plus (B) two
percent (2%) per annum. Upon such payment of the Proposition 13
Purchase Price, the provisions of Section 10.3(b) shall not apply to
any Tax Increase attributable to the Applicable Reassessment. As
Landlord will estimate the Proposition 13 Purchase Price because a
Reassessment has not yet occurred, then when such Reassessment occurs,
if Landlord has underestimated the Proposition 13 Purchase Price, then
upon notice by Landlord to Tenant, Tenant's rent next due shall be
credited with the amount of such underestimation, and if Landlord
overestimates the Proposition 13 Purchase Price, then upon notice by
Landlord to Tenant, rent next due shall be increased by the amount of
the overestimation.
11. POSSESSION; CONDITION OF PREMISES; REPAIRS.
11.1 DELIVERY OF POSSESSION. Landlord will deliver possession of the
Premises to Tenant in its current "as-is" condition (subject, however, to
Section 11.2) on or before the date required by Section 1.7 of the Summary. If,
for any reason not caused by Tenant, Landlord cannot deliver possession of the
Premises to Tenant by the date required by Section 1.7 of the Summary, this
Lease will not be void or voidable, nor will Landlord be liable to Tenant for
any loss or damage resulting from such delay. If the delay in possession is
caused by Tenant, then the Term and Tenant's obligation to pay rent will
commence as of the date the Commencement Date would have occurred but for
Tenant's delay, even though Tenant does not yet have possession. Notwithstanding
the foregoing, Landlord will not be obligated to deliver possession of the
Premises to Tenant (but Tenant will be liable for rent if Landlord can otherwise
deliver the Premises to Tenant) until Landlord has received from Tenant all of
the following: (i) a copy of this Lease fully executed by Tenant; (ii)the first
installment of Monthly Basic Rent; and (iii) copies of policies of insurance or
certificates thereof as required under Section 21 of this Lease. Notwithstanding
anything to the contrary contained herein, if Landlord has not delivered the
Premises to Tenant within fifteen (15) days from the date hereof for any reason,
including but not limited to force majeure delays, Tenant shall have the right
thereafter (but prior to delivery of the Premises) to cancel this Lease by
giving Landlord written notice thereof, and upon such cancellation, Landlord
shall return all sums theretofore deposited by Tenant with Landlord, and neither
party shall have any further liability to the other hereunder.
11.2 CONDITION OF PREMISES. Tenant acknowledges that, except as otherwise
expressly set forth in this Lease, neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the Premises, the
Building or the Project or their condition, or with respect to the suitability
thereof for the conduct of Tenant's business. The taking of possession of the
Premises by Tenant shall conclusively establish that the Project, the Premises,
the Tenant Improvements therein, the Building and the Common Areas were at such
time complete and in good, sanitary and satisfactory condition and repair and
without any obligation on Landlord's part to make any alterations, upgrades or
improvements thereto. Notwithstanding anything to the contrary in Section 11.1
or this Section 11.2, as of the Commencement Date (i) all plumbing, electrical,
HVAC and mechanical systems in the Premises shall be in good working order (with
the exception of failures to such systems caused by Tenant and the repairs
needed to the HVAC
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system identified in the Due Diligence Report dated December 11, 1996 prepared
by Weather Engineering, the responsibility of which will be Tenant's at its cost
and expense, but with respect to the HVAC repairs, subject to reimbursement by
Landlord from the Construction Allowance) and (ii) the Common Areas shall comply
with Title III of the Americans with Disabilities Act of 1990 (the "ACT") and
all other laws applicable thereto (but without regard to the Tenant
Improvements, for which Tenant shall be responsible to ensure compliance with
the Act and all other laws applicable thereto). In the event it is determined
that the condition of the Premises or Common Areas is not as required by this
Section 11.2, then it shall be the obligation of Landlord, after written notice
from Tenant, to promptly, at Landlord's sole cost and expense, rectify any such
condition. In the event Tenant does not give Landlord written notice that any of
the plumbing, electrical, HVAC or mechanical systems are not in good working
order within eighteen (18) days from the Commencement Date, the correction of
same shall be the responsibility of Tenant at Tenant's cost.
Landlord warrants that: (i) as of the date hereof and as of the Commencement
Date Landlord has no actual knowledge of any material defects in the Premises or
Building which could reasonably be expected by Landlord to unreasonably
interfere with Tenant's use and enjoyment of the Premises (however, this
warranty shall not apply to defects caused by Tenant); (ii) as of the date
hereof, Landlord is the fee owner of the Premises and has the right and
authority to lease the Premises to Tenant on the terms and conditions set forth
in the Lease; and (iii) as of the Commencement Date, or as soon thereafter as is
reasonably practicable, Landlord shall complete its currently planned
improvements to the exterior of the Building. As the exclusive remedy for a
breach of the foregoing warranties, Landlord shall, promptly following written
notice thereof from Tenant, correct any violation of the foregoing warranties at
Landlord's sole cost and expense. Subject to the foregoing warranties, by entry
upon the Premises, Tenant agrees to accept the Premises in their "as is"
condition.
Notwithstanding the foregoing, Tenant acknowledges that certain repairs to the
Premises are needed due to vandalism, and that Tenant will be responsible for
the repair of same, subject to reimbursement by Landlord from the Construction
Allowance.
11.3 LANDLORD'S REPAIR OBLIGATIONS. Except as provided in Section 11.2
above, Landlord shall, as part of the Operating Expenses, repair, maintain and
replace, as necessary, (a) the Building shell and other structural portions of
the Building (including the roof and foundations), (b) the basic plumbing,
heating, ventilating, air conditioning, sprinkler and electrical systems within
the Building core (but not any conduits or connections thereto or distribution
systems thereof within the Premises or any other tenant's premises), and (c) the
Common Areas of the Project; provided, however, to the extent such maintenance
or repairs are required as a result of any act, neglect, fault or omission of
Tenant or any of Tenant's agents, employees, contractors, licensees or invitees,
Tenant shall pay to Landlord, as additional rent, the costs of such maintenance
and repairs. Landlord shall not be liable to Tenant for failure to perform any
such repairs or maintenance, unless Landlord shall fail to make such repairs and
such failure shall continue for an unreasonable time following written notice
from Tenant to Landlord of the need for such repairs. Without limiting the
foregoing, Tenant waives the right to make repairs at Landlord's expense under
any law, statute or ordinance now or hereafter in effect (including the
provisions of California Civil Code Section 1942 and any successive sections or
statutes of a similar nature).
11.4 TENANT'S REPAIR OBLIGATIONS. Except for Landlord's obligations
specifically set forth in Sections 11.2, 11.3, 18.1 and 19.2 hereof, Tenant
shall at all times and at Tenant's sole cost and expense, keep, maintain, clean,
repair and preserve and replace, as necessary, the Premises and all parts
thereof including, without limitation, all Tenant Improvements, Tenant Changes,
utility meters, pipes and conduits, all heating, ventilating and air
conditioning systems located within the Premises, all fixtures, furniture and
equipment, Tenant's storefront and signs, if any, locks, closing devices,
security devices, windows, window sashes, casements and frames, floors and floor
coverings, shelving, restrooms, if any, and any alterations, additions and other
property located within the Premises in good condition and repair, reasonable
wear and tear excepted. Tenant shall replace, at its expense, any and all plate
and other glass in and about the Premises which is damaged or broken from any
cause whatsoever except due to the gross negligence or willful misconduct of
Landlord, its agents or employees. Such maintenance and repairs shall be
performed with due diligence, lien-free and in a good and workmanlike manner, by
licensed contractor(s) which are selected by Tenant and approved by Landlord,
which approval Landlord shall not unreasonably withhold or delay. Except as
otherwise expressly provided in this Lease, Landlord shall have no obligation to
alter, remodel, improve, repair, renovate, redecorate or paint all or any part
of the Premises.
12. ALTERATIONS.
12.1 TENANT CHANGES; CONDITIONS.
(a) Tenant shall not make any alterations, additions, improvements or
decorations to the Premises (collectively, "TENANT CHANGES," and
individually, a "TENANT CHANGE") unless Tenant first obtains Landlord's
prior written approval thereof, which approval Landlord shall not
unreasonably withhold. Notwithstanding the foregoing, Landlord's prior
approval shall not be required for any Tenant Change which satisfies
all of the following conditions (hereinafter a "PRE-APPROVED CHANGE"):
(i) the costs of such Tenant Change does not exceed Twenty-Five
Thousand Dollars ($25,000.00) individually; (ii) the costs of such
Tenant Change when aggregated with the costs of all other Tenant
Changes made by Tenant during the Term of this Lease do not exceed One
Hundred Thousand Dollars ($100,000.00); (iii) Tenant delivers to
Landlord final plans, specifications and working drawings for such
Tenant Change at least ten (10) days prior to commencement of the work
thereof; (iv) the Tenant Change does not affect the mechanical,
electrical, plumbing or life safety systems of the Premises, the roof
or structural components of the Premises or the exterior of the
Premises; and (v) Tenant and such Tenant Change otherwise satisfy all
other conditions set forth in this Section 12.1.
(b) All Tenant Changes shall be performed: (i) in accordance with the
approved plans, specifications and working drawings; (ii) lien-free and
in a good and workmanlike manner; (iii) in compliance with all laws,
rules and regulations of all governmental agencies and authorities
including, without limitation, the provisions of Title III of
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the Americans with Disabilities Act of 1990; (iv) in such a manner so
as not to unreasonably interfere with the occupancy of any other tenant
in the Building or any other building located within the Project, nor
impose any additional expense upon nor delay Landlord in the
maintenance and operation of the Building or any other building located
within the Project; and (v) at such times, in such manner and subject
to such rules and regulations as Landlord may from time to time
reasonably designate.
(c) Throughout the performance of the Tenant Changes, Tenant shall obtain,
or cause its contractors to obtain, workers compensation insurance and
commercial general liability insurance in compliance with the
provisions of Section 20 of this Lease.
12.2 REMOVAL OF TENANT CHANGES AND TENANT IMPROVEMENTS. All Tenant Changes
and the initial Tenant Improvements in the Premises (whether installed or paid
for by Landlord or Tenant), shall become the property of Landlord and shall
remain upon and be surrendered with the Premises at the end of the Term of this
Lease; provided, however, Landlord may, by written notice delivered to on or
before the expiration of the Lease Term (or upon any sooner termination of this
Lease) identify those items of the initial Tenant Improvements and Tenant
Changes which Landlord shall require Tenant to remove at the end of the Term of
this Lease. If Landlord requires Tenant to remove any such items as described
above, Tenant shall, at its sole cost, remove the identified items on or before
the expiration or sooner termination of this Lease and repair any damage to the
Premises caused by such removal (or, at Landlord's option, shall pay to Landlord
all of Landlord's costs of such removal and repair).
Notwithstanding anything to the contrary contained herein, Tenant shall not be
required to remove (i) any of the initial Tenant Improvements constructed by or
on behalf of Tenant, and (ii) any Tenant Change for which Tenant has obtained
Landlord's consent (unless at the time of Landlord's granting of such consent,
Landlord required the removal of such Tenant Change as a condition to such
consent). Tenant shall be entitled, but not required, to remove the following
described items, provided Tenant repairs any damage to the Premises caused by
such removal: phone system and security system (if Tenant elects to remove any
such system, Tenant shall also remove all wiring associated with such system.
12.3 REMOVAL OF PERSONAL PROPERTY. All articles of personal property owned
by Tenant or installed by Tenant at its expense in the Premises (including
business and trade fixtures, furniture and movable partitions) shall be, and
remain, the property of Tenant, and shall be removed by Tenant from the
Premises, at Tenant's sole cost and expense, on or before the expiration or
sooner termination of this Lease. Tenant shall repair any damage caused by such
removal.
12.4 TENANT'S FAILURE TO REMOVE. If Tenant fails to remove by the expiration
or sooner termination of this Lease all of its personal property, or any items
of Tenant Improvements or Tenant Changes identified by Landlord for removal
pursuant to Section 12.2 above, Landlord may, (without liability to Tenant for
loss thereof), at Tenant's sole cost and in addition to Landlord's other rights
and remedies under this Lease, at law or in equity: (a) remove and store such
items in accordance with applicable law; and/or (b) upon ten (10) days' prior
notice to Tenant, sell all or any such items at private or public sale for such
price as Landlord may obtain as permitted under applicable law. Landlord shall
apply the proceeds of any such sale to any amounts due to Landlord under this
Lease from Tenant (including Landlord's reasonable attorneys' fees and other
costs incurred in the removal, storage and/or sale of such items), with any
remainder to be paid to Tenant.
13. LIENS. Tenant shall not permit any mechanic's, materialmen's or other
liens to be filed against all or any part of the Project, the Building or the
Premises, nor against Tenant's leasehold interest in the Premises, by reason of
or in connection with any repairs, alterations, improvements or other work
contracted for or undertaken by Tenant or any other act or omission of Tenant or
Tenant's agents, employees, contractors, licensees or invitees. Tenant shall, at
Landlord's request, provide Landlord with enforceable, conditional and final
lien releases (and other reasonable evidence reasonably requested by Landlord to
demonstrate protection from liens) from all persons furnishing labor and/or
materials with respect to the Premises. Landlord shall have the right at all
reasonable times to post on the Premises and record any notices of
non-responsibility which it deems necessary for protection from such liens. If
any such liens are filed, Tenant shall, at its sole cost, immediately cause such
lien to be released of record or bonded so that it no longer affects title to
the Project, the Building or the Premises. If Tenant fails to cause such lien to
be so released or bonded within twenty (20) days after filing thereof, Landlord
may, without waiving its rights and remedies based on such breach, and without
releasing Tenant from any of its obligations, 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. Tenant shall pay to Landlord within five (5) days
after receipt of invoice from Landlord, any sum paid by Landlord to remove such
liens, together with interest at the Interest Rate from the date of such payment
by Landlord.
14. ASSIGNMENT AND SUBLETTING.
14.1 RESTRICTION ON TRANSFER. Tenant will not assign or encumber this Lease
in whole or in part, nor sublet all or any part of the Premises (collectively
and individually, a "TRANSFER"), without the prior written consent of Landlord,
which consent Landlord will not unreasonably withhold, except as provided in
this Section 14. The consent by Landlord to any Transfer shall not constitute a
waiver of the necessity for such consent to any subsequent Transfer. This
prohibition against Transfers shall be construed to include a prohibition
against any assignment or subletting by operation of law. If this Lease is
Transferred by Tenant, or if the Premises or any part thereof are Transferred or
occupied by any person or entity other than Tenant, Landlord may collect rent
from the assignee, subtenant or occupant, and apply the net amount collected to
the rent herein reserved during any time that a default (after notice and
expiration of applicable grace periods) exists hereunder. No such Transfer,
occupancy or collection shall be deemed a waiver on the part of Landlord, or the
acceptance of the assignee, subtenant or occupant as Tenant, or a release of
Tenant from the further performance by Tenant of covenants on the part of Tenant
herein contained unless expressly made in writing by Landlord. Irrespective of
any Transfer, Tenant shall remain fully liable under this Lease and shall not be
released from performing any of the terms, covenants and conditions of this
Lease. Without limiting in any way Landlord's right to withhold its consent on
any reasonable grounds, it is agreed that Landlord will not be acting
unreasonably in refusing to consent to a
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Transfer if, in Landlord's opinion, (i) the net worth or financial capabilities
of such assignee or subtenant is less than that of Tenant at the date hereof,
(ii) the proposed assignee or subtenant does not have the financial capability
to fulfill the obligations imposed by the Transfer, (iii) the proposed Transfer
involves a change of use of the Premises from that specified herein, or (iv) the
proposed assignee or subtenant is not, in Landlord's reasonable opinion, of
reputable or good character or consistent with Landlord's desired tenant mix for
the Project. Any proposed assignee or subtenant which Landlord does not
disapprove shall be deemed a "PERMITTED BUSINESS." If Tenant is a corporation,
or is an unincorporated association or partnership, the transfer, assignment or
hypothecation of any stock or interest in such corporation, association or
partnership in the aggregate in excess of fifty percent (50%) shall be deemed an
assignment within the meaning and provisions of this Section 14.1.
Notwithstanding anything to the contrary contained in this Lease, Landlord
agrees that Tenant may assign this Lease or sublet the Premises, or any portion
thereof, without Landlord's consent, to any entity which controls, is controlled
by, or is under common control with Tenant; to any entity which results from a
reincorporation, merger or consolidation with Tenant; to any entity engaged in a
joint venture with Tenant; or to any entity that acquires all or substantially
all of the stock or assets of Tenant, (hereinafter each a "PERMITTED TRANSFER"
or "PERMITTED TRANSFEREE," as applicable), provided (i) with respect to any
entity that acquires all or substantially all of the stock or assets of Tenant
or an entity that results from a merger or consolidation (i.e., where Tenant is
not the surviving entity), such Permitted Transferee has a net worth equal to
Tenant's as of the date hereof, (ii) Tenant gives Landlord written notice of the
Permitted Transfer at least ten (10) days prior to the effective date thereof,
which notice provides Landlord with sufficient information to verify the
satisfaction of the criteria for a Permitted Transfer, (iii) in the case of an
assignment of this Lease, the Permitted Transferee assumes the obligations of
Tenant hereunder pursuant to an instrument reasonably acceptable to Landlord,
and (iv) the Permitted Transfer is effectuated for a bona fide business purpose
and not as a means to avoid Tenant's obligations under this Lease. In addition,
any sale or transfer of the capital stock of Tenant shall be deemed a Permitted
Transfer if (1) such sale or transfer occurs in connection with any bona fide
financing or capitalization for the benefit of Tenant, or (2) Tenant becomes a
publicly traded corporation, or (3) such sale or transfer is made to any
publicly traded corporation. Without limiting the generality of the foregoing,
Landlord shall have no right to any sums or other economic consideration
resulting from any Permitted Transfer as otherwise permitted in Section 14.4 and
shall have no right to terminate this Lease as a result of any Permitted
Transfer as otherwise permitted in Section 14.3.
14.2 TRANSFER NOTICE. If Tenant desires to effect a Transfer, then at least
thirty (30) days prior to the date when Tenant desires the Transfer to be
effective (the "TRANSFER DATE"), Tenant agrees to give Landlord a notice (the
"TRANSFER NOTICE"), stating the name, address and business of the proposed
assignee, sublessee or other transferee (sometimes referred to hereinafter as
"TRANSFEREE"), reasonable information (including references) concerning the
character, ownership, and financial condition of the proposed Transferee, the
Transfer Date, any ownership or commercial relationship between Tenant and the
proposed Transferee, and the consideration and all other material terms and
conditions of the proposed Transfer, all in such detail as Landlord may
reasonably require.
14.3 LANDLORD'S OPTIONS. Within fifteen (15) days of Landlord's receipt of
any Transfer Notice, and any additional information requested by Landlord
concerning the proposed Transferee's financial responsibility, Landlord will
notify Tenant of its election to do one of the following: (i) consent to the
proposed Transfer subject to such reasonable conditions as Landlord may impose
in providing such consent; or (ii) refuse such consent, which refusal shall be
on reasonable grounds.
14.4 ADDITIONAL CONDITIONS. A condition to Landlord's consent to any
Transfer of this Lease will be the delivery to Landlord of a true copy of the
fully executed instrument of assignment, sublease, transfer or hypothecation, in
form and substance reasonably satisfactory to Landlord. Tenant agrees to pay to
Landlord, as additional rent, one-half (1/2) of all sums and other consideration
payable to and for the benefit of Tenant by the Transferee in excess of the rent
payable under this Lease for the same period and portion of the Premises. In
calculating excess rent or other consideration which may be payable to Landlord
under this Section, Tenant will be entitled to deduct commercially reasonable
third party brokerage commissions and attorneys' fees and other amounts
reasonably and actually expended by Tenant in connection with such assignment or
subletting (together with the unamortized cost of any Tenant Improvements or
Tenant Changes paid by Tenant in excess of the Construction Allowance, which
unamortized cost shall be amortized over the remaining term of this Lease) if
acceptable written evidence of such expenditures is provided to Landlord. No
Transfer (including a Permitted Transfer) will release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant to pay the
rent and to perform all other obligations to be performed by Tenant hereunder.
During any time that a default (after notice and expiration of applicable grace
periods) exists hereunder, Landlord may require that any Transferee remit
directly to Landlord on a monthly basis, all monies due Tenant by said
Transferee. Consent by Landlord to one Transfer will not be deemed consent to
any subsequent Transfer. In the event of default by any Transferee of Tenant or
any successor of Tenant in the performance of any of the terms hereof, Landlord
may proceed directly against Tenant without the necessity of exhausting remedies
against such Transferee or successor. If Tenant effects a Transfer (including a
Permitted Transfer) or requests the consent of Landlord to any Transfer
(including a Permitted Transfer) (whether or not such Transfer is consummated),
then, upon demand, and as a condition precedent to Landlord's consideration of
the proposed assignment or sublease, Tenant agrees to pay Landlord's reasonable
attorneys' fees and costs and other costs actually incurred by Landlord in
reviewing such proposed assignment or sublease.
15. ENTRY BY LANDLORD. Landlord and its employees and agents shall at all
reasonable times have the right to enter the Premises to inspect the same, to
supply any service required to be provided by Landlord to Tenant under this
Lease, to exhibit the Premises to prospective lenders or purchasers (or during
the last year of the Term, to prospective tenants), to post notices of
non-responsibility, and/or to alter, improve or repair the Premises or any other
portion of the Building, all without being deemed guilty of or liable for any
breach of Landlord's covenant of quiet enjoyment or any eviction of Tenant, and
without abatement of rent. In exercising such entry rights, Landlord shall
endeavor to minimize, as reasonably practicable, the interference with Tenant's
business, and shall provide Tenant with reasonable advance written notice of
such entry (except in emergency situations). Landlord shall have the means which
Landlord may deem proper to open Tenant's doors in an emergency in order to
obtain entry to the Premises. Any entry to the Premises obtained by Landlord by
any of said means or otherwise shall not under any circumstances be construed or
deemed to be
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<PAGE> 19
a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction of Tenant from the Premises or any portion thereof, or grounds for any
abatement or reduction of rent and Landlord shall not have any liability to
Tenant for any damages or losses on account of any such entry by Landlord
except, subject to the provisions of Section 22.1, to the extent of Landlord's
gross negligence or willful misconduct, but Landlord shall promptly repair, at
its sole cost, all damage caused by its entry to the extent such damage is not
covered by insurance Tenant carries or is required to carry hereunder.
16. UTILITIES AND SERVICES. Tenant shall be solely responsible for and
shall promptly pay all charges for heat, air conditioning, water, gas,
electricity or any other utility used, consumed or provided in, furnished to or
attributable to the Premises at the rates charged by the supplying utility
companies and/or Landlord. Should Landlord elect to supply any or all of such
utilities, Tenant agrees to purchase and pay for the same as additional rent as
apportioned by Landlord. The rate to be charged to Landlord to Tenant shall not
exceed the rate charged to Landlord by any supplying utility. Tenant shall
reimburse Landlord within ten (10) days of billing for fixture charges and/or
water tariffs, if applicable, which are charged to Landlord by local utility
companies. Landlord will notify Tenant of this charge as soon as it becomes
known. This charge will increase or decrease with current charges being levied
against Landlord, the Premises or the Building by the local utility company, and
will be due as additional rent. In no event shall Landlord be liable for any
interruption or failure in the supply of any such utility services to Tenant
unless such interruption or failure is caused by a default hereunder by Landlord
or by Landlord's gross negligence or willful misconduct, in which event Landlord
will be liable for damages caused by such interruption to the extent such
damages are not covered by the insurance Tenant maintains or is required to
maintain hereunder.
17. INDEMNIFICATION AND EXCULPATION.
17.1 TENANT'S ASSUMPTION OF RISK AND WAIVER. Except to the extent such
matter is not covered by the insurance required to be maintained by Tenant under
this Lease and such matter is attributable to the gross negligence or willful
misconduct of Landlord, Landlord shall not be liable to Tenant, Tenant's
employees, agents or invitees for: (i) any damage to property of Tenant, or of
others, located in, on or about the Premises, (ii) the loss of or damage to any
property of Tenant or of others by theft or otherwise, (iii) any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain or leaks from any part of the Premises or
from the pipes, appliance of plumbing works or from the roof, street or
subsurface or from any other places or by dampness or by any other cause of
whatsoever nature, or (iv) any such damage caused by other tenants or persons in
the Premises, occupants of adjacent property of the Project, or the public, or
caused by operations in construction of any private, public or quasi-public
work. Landlord shall in no event be liable for any consequential damages or loss
of business or profits and Tenant hereby waives any and all claims for any such
damages. All property of Tenant kept or stored on the Premises shall be so kept
or stored at the sole risk of Tenant and Tenant shall hold Landlord harmless
from any claims arising out of damage to the same, including subrogation claims
by Tenant's insurance carriers, unless such damage shall be caused by the
negligence or willful misconduct of Landlord or a breach by Landlord of its
obligations under the lease and is not covered by insurance Tenant carries or is
required to carry hereunder. Landlord or its agents shall not be liable for
interference with the light or other intangible rights.
17.2 TENANT'S INDEMNIFICATION OF LANDLORD. Tenant shall be liable for, and
shall indemnify, defend, protect and hold Landlord and Landlord's partners,
officers, directors, employees, agents, successors and assigns (collectively,
"LANDLORD INDEMNIFIED PARTIES") harmless from and against, any and all claims,
damages, judgments, suits, causes of action, losses, liabilities and expenses,
including reasonable attorneys' fees and court costs (collectively, "INDEMNIFIED
CLAIMS"), arising or resulting from (a) any negligent or willful act or omission
of Tenant or any of Tenant's agents, employees, contractors, subtenants,
assignees, licensees or with respect to acts or omissions within the Premises
only, Tenant's invitees (collectively, "TENANT PARTIES"); (b) the use of the
Premises and Common Areas and conduct of Tenant's business by Tenant or any
Tenant Parties, or any other activity, work or thing done, permitted or suffered
by Tenant or any Tenant Parties, in or about the Premises, the Building or
elsewhere on the Project; and/or (c) any default by Tenant of any obligations on
Tenant's part to be performed under the terms of this Lease. In case any action
or proceeding is brought against Landlord or any Landlord Indemnified Parties by
reason of any such Indemnified Claims, Tenant, upon notice from Landlord, shall
defend the same at Tenant's expense by counsel approved in writing by Landlord,
which approval shall not be unreasonably withheld.
17.3 LANDLORD'S INDEMNIFICATION OF TENANT. Except for matters (i) covered by
insurance obtained or required to be obtained by Tenant under this Lease or (ii)
the negligence or willful misconduct of the Tenant Parties, Landlord will be
liable for, and shall indemnify, protect, defend and hold harmless Tenant and
Tenant's partners, officers, directors, employees, agents, successors and
assigns (collectively, "TENANT INDEMNIFIED PARTIES"), from and against, any
Indemnified Claims, to the extent any such Indemnified Claim arises or results
from (a) any negligent or willful act or omission of Landlord or any Landlord
Parties; (b) any default by Landlord of any obligations on Landlord's part to be
performed under the terms of this Lease; and (c) to the extent covered by the
insurance required to be maintained by Landlord under this Lease (or which would
have been covered if Landlord had carried such required insurance), any acts or
omissions of any third parties occurring in the Common Areas. In case any action
or proceeding is brought against Tenant or any Tenant Indemnified Parties by
reason of any such injury or damage indemnified by Landlord as set forth
hereinabove, Landlord, upon notice from Tenant, agrees to defend the same at
Landlord's expense by counsel approved in writing by Tenant, which approval
Tenant will not unreasonably withhold.
17.4 SURVIVAL; NO RELEASE OF INSURERS. The respective indemnification
obligations of Tenant and Landlord under Sections 17.2 and 17.3, shall survive
the expiration or earlier termination of this Lease. The respective covenants,
agreements and indemnification in Sections 17.1, 17.2 and 17.3 above, are not
intended to and shall not relieve any insurance carrier of its obligations under
policies required to be carried by Tenant or Landlord, pursuant to the
provisions of this Lease.
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18. DAMAGE OR DESTRUCTION.
18.1 LANDLORD'S RIGHTS AND OBLIGATIONS. In the event the Premises are
damaged by fire or other casualty that is not required to be insured hereunder
by Landlord, which damage does not exceed ten percent (10%) of the full
replacement cost thereof, or, regardless of the amount of damage, if Landlord
will receive insurance proceeds sufficient to cover the costs of such repairs,
reconstruction and restoration (or Landlord would have received sufficient
proceeds had Landlord maintained the insurance required of Landlord hereunder)
and if Landlord's contractor estimates in a writing delivered to the parties
that the damage is such that the Premises may be repaired, reconstructed or
restored to substantially its condition immediately prior to such damage within
one hundred eighty (180) days from the date of such damage, then Landlord shall
commence and proceed diligently with the work of repair, reconstruction and
restoration of the Premises (including the Tenant Improvements but excluding
Tenant Changes unless Tenant delivers sufficient proceeds therefor) and this
Lease shall continue in full force and effect. If Landlord is not required to
repair, reconstruct or restore the Premises pursuant to the prior sentence, then
Landlord may elect to either:
(a) promptly repair, reconstruct and restore the portion of the Premises
damaged by such casualty (including the Tenant Improvements but
excluding Tenant Changes unless Tenant delivers sufficient proceeds
therefor), in which case this Lease shall continue in full force and
effect; or
(b) terminate this Lease effective as of the date which is thirty (30) days
after Tenant's receipt of Landlord's election to so terminate.
Under any of the conditions of this Section 18.1, Landlord shall give written
notice to Tenant of its intention to repair or terminate within the earlier of
forty-five (45) days after the occurrence of such casualty, or fifteen (15) days
after Landlord's receipt of the estimate from Landlord's contractor. If
Landlord's contractor's written estimate of the time to complete the repair or
restoration exceeds one hundred eighty (180) days from the date Landlord has
knowledge of the casualty, Tenant shall also have the right to terminate this
Lease by giving written notice to Landlord within thirty (30) days after
Tenant's receipt of such written estimate.
If Landlord elects to terminate this Lease because of insufficient insurance
proceeds, Tenant shall have the right within ten (10) days after the receipt of
such notice to give notice to Landlord of Tenant's intention to fund such
insufficiency in insurance proceeds, in which event this Lease shall continue in
full force and effect, and Tenant shall promptly deposit such funds with
Landlord and thereafter Landlord shall restore the Premises. If Tenant does not
give such notice within such ten (10) day period this Lease shall be terminated
as of the date of Landlord's termination.
Upon termination of this Lease pursuant to this Section 18, an equitable
adjustment shall be made concerning advance rent and any advance payments made
by Tenant to Landlord. Landlord shall, in addition, return to Tenant within
fifteen (15) days following such termination so much of Tenant's security
deposit as has not theretofore been applied by Landlord.
18.2 TENANT'S COSTS AND INSURANCE PROCEEDS. In the event of any damage or
destruction of all or any part of the Premises, Tenant shall immediately: (a)
notify Landlord thereof; and (b) deliver to Landlord all insurance proceeds
received by Tenant with respect to the Tenant Improvements and Tenant Changes in
the Premises to the extent such items are not covered by Landlord's casualty
insurance obtained by Landlord pursuant to Section 21 below (excluding proceeds
for Tenant's furniture and other personal property), whether or not this Lease
is terminated as permitted in this Section 18, and Tenant hereby assigns to
Landlord all rights to receive such insurance proceeds; provided, however, with
respect to proceeds of insurance for those Tenant Changes paid for by Tenant, in
the event of a termination of this Lease, Tenant may retain a portion of the
insurance proceeds applicable to such Tenant Changes based upon a fraction, the
numerator of which is the number of months remaining in the Term (had this Lease
not been terminated), and the denominator of which is the number of months
remaining in the Term at the time the Tenant Change was installed in the
Premises.
18.3 ABATEMENT OF RENT. In the event that as a result of any such damage,
repair, reconstruction and/or restoration of the Premises, Tenant's use of the
Premises or any portion thereof is impaired, then the rent shall be equitably
abated during the period that Tenant's use of the Premises is impaired based
upon the degree of such impairment. Notwithstanding the foregoing to the
contrary, if the damage is due to the negligence or willful misconduct of Tenant
or any Tenant Parties, there shall be no abatement of rent. Except for abatement
of rent as provided hereinabove, Tenant shall not be entitled to any
compensation or damages for loss of, or interference with, Tenant's business or
use or access of all or any part of the Premises resulting from any such damage,
repair, reconstruction or restoration.
18.4 INABILITY TO COMPLETE. Notwithstanding anything to the contrary
contained in this Section 18, if Landlord is obligated or elects to repair,
reconstruct and/or restore the damaged portion of the Premises pursuant to
Section 18.1 above, but is delayed from completing such repair, reconstruction
and/or restoration beyond the date which is four (4) months after the date
estimated by Landlord's contractor for completion thereof pursuant to Section
18.1, by reason of any causes beyond the reasonable control of Landlord
(including, without limitation, any delay due to Force Majeure as defined in
Section 32.16, and delays caused by Tenant or any Tenant Parties), then either
party may elect to terminate this Lease upon thirty (30) days' prior written
notice to the other given prior to completion of such repair, reconstruction
and/or restoration; provided, however, (i) Tenant may not make such election if
the delay was caused by Tenant or Tenant's Parties or if the remaining damage
does not materially impair Tenant's use of the Premises and (ii) if Tenant is
permitted to and does make such election, Landlord may rescind such election by
completing the repairs, reconstruction and/or restoration within thirty (30)
days following Tenant's election. In addition, if Landlord is required or elects
to restore the Premises under the provisions of this Section 18 and does not
commence such restoration within one hundred twenty (120) days of the date
Landlord has knowledge of the damage, and if such damage material impairs
Tenant's use of the Premises, Tenant may, at Tenant's option, terminate this
Lease by giving Landlord notice thereof at any time prior to the commencement of
such restoration. In such event, this Lease shall terminate as of the date of
such
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notice; provided, however, Landlord may rescind such termination by commencing
such restoration within thirty (30) days following such termination.
18.5 DAMAGE TO THE PROJECT. If there is a total destruction of the Project
or a partial destruction of the Project, the cost of restoration of which would
exceed one-third (1/3) of the then replacement value of the Project, by any
cause whatsoever, whether or not insured against and whether or not the Premises
are partially or totally destroyed, Landlord may within the earlier of fifteen
(15) days after Landlord's receipt of the estimate from Landlord's contractor or
forty-five (45) days after the occurrence of such destruction, notify Tenant in
writing that it elects not to so reconstruct or restore the Project, in which
event this Lease shall cease and terminate as of the date of such destruction.
18.6 DAMAGE NEAR END OF TERM. In addition to the termination rights in
Sections 18.1 and 18.4 above, Landlord and Tenant shall have the right to
terminate this Lease if any damage to the Building or Premises occurs during the
last twelve (12) months of the Term of this Lease and Landlord's contractor
estimates in a writing delivered to the parties that the repair, reconstruction
or restoration of such damage cannot be completed within the earlier of (a) the
scheduled expiration date of the Lease Term, or (b) sixty (60) days after the
date of such casualty, provided Landlord so notifies Tenant within the earlier
of fifteen (15) days after Landlord's receipt of the estimate from Landlord's
contractor or forty-five (45) days of the casualty, and provided further that
Tenant's termination right under this Section 18.6 shall apply only to damage to
the Premises or material damage to the parking areas or access to the Premises.
In addition, in the event of damage to the Premises during the second (2nd) to
the last year of the Term that is not required to be insured by Landlord
hereunder and which will require more than ninety (90) days to repair, Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof within the same time period required in the preceding sentence;
provided, however, if Landlord does so terminate this Lease, Tenant shall have
the right within ten (10) days after the receipt of such notice to give notice
to Landlord of Tenant's intention to pay for the cost of such repair, in which
event this Lease shall continue in full force and effect and Tenant shall
promptly deposit such funds with Landlord and thereafter Landlord shall repair
the Premises.
Notwithstanding anything to the contrary in this Lease, if, at the time of such
damage, Tenant has an Extension Option and the time for the exercise of the
Extension Option has not then expired, Tenant shall have a period of ten (10)
days from Landlord's election to terminate this Lease pursuant to this Section
18.6 in which to elect to exercise the Extension Option. If Tenant exercises
such Extension Option during said ten (10) day period, Landlord's election to
terminate this Lease under this Section 18.6 shall be rescinded and the other
relevant provisions of Section 18 shall govern the respective rights and
obligations of the parties with respect to such damage.
18.7 WAIVER OF TERMINATION RIGHT. This Lease sets forth the terms and
conditions upon which this Lease may terminate in the event of any damage or
destruction. Accordingly, the parties hereby waive the provisions of California
Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 (and any
successor statutes thereof permitting the parties to terminate this Lease as a
result of any damage or destruction).
19. EMINENT DOMAIN.
19.1 SUBSTANTIAL TAKING. Subject to the provisions of Section 19.4 below, in
case the whole of the Premises, or such part thereof as shall substantially
interfere with Tenant's use and occupancy of the Premises as reasonably
determined by Landlord, shall be taken for any public or quasi-public purpose by
any lawful power or authority by exercise of the right of appropriation,
condemnation or eminent domain, or sold to prevent such taking, either party
shall have the right to terminate this Lease effective as of the date possession
is required to be surrendered to said authority.
19.2 PARTIAL TAKING; ABATEMENT OF RENT. In the event of a taking of a
portion of the Premises which does not substantially interfere with the conduct
of Tenant's business, then, except as otherwise provided in the immediately
following sentence, neither party shall have the right to terminate this Lease
and Landlord shall thereafter proceed to make a functional unit of the remaining
portion of the Premises (but only to the extent Landlord receives proceeds
therefor from the condemning authority), and rent shall be abated with respect
to the part of the Premises which Tenant shall be so deprived on account of such
taking. Notwithstanding the immediately preceding sentence to the contrary, if
any part of the Building or the Project shall be taken (whether or not such
taking substantially interferes with Tenant's use of the Premises), Landlord may
terminate this Lease upon thirty (30) days' prior written notice to Tenant as
long as Landlord also terminates leases of all other tenants leasing comparably
sized space within the Building for comparable lease terms.
19.3 CONDEMNATION AWARD. Subject to the provisions of Section 19.4 below, in
connection with any taking of the Premises or the Building, Landlord shall be
entitled to receive the entire amount of any award which may be made or given in
such taking or condemnation, without deduction or apportionment for any estate
or interest of Tenant, it being expressly understood and agreed by Tenant that
no portion of any such award shall be allowed or paid to Tenant for any
so-called bonus or excess value of this Lease, and such bonus or excess value
shall be the sole property of Landlord. Tenant shall not assert any claim
against Landlord or the taking authority for any compensation because of such
taking (including any claim for bonus or excess value of this Lease); provided,
however, if any portion of the Premises is taken, Tenant shall be granted the
right to recover from the condemning authority (but not from Landlord) any
compensation as may be separately awarded or recoverable by Tenant for the
taking of Tenant's furniture, fixtures, equipment and other personal property
within the Premises, for Tenant's relocation expenses, and for any loss of
goodwill or other damage to Tenant's business by reason of such taking and for a
prorata share of the value of that portion of the Tenant Improvements and Tenant
Changes paid for by Tenant in excess of the Construction Allowance, which
prorata share shall be based upon a fraction, the numerator of which is the
number of months remaining in the Term (had this Lease not been terminated), and
the denominator of which is the number of months remaining in the term at the
time the Tenant Improvements and Tenant Changes were installed in the Premises.
19.4 TEMPORARY TAKING. In the event of a taking of the Premises or any part
thereof for temporary use, (a) this Lease shall be and remain unaffected thereby
and rent shall not abate, and (b) Tenant shall be entitled to receive for
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itself such portion or portions of any award made for such use with respect to
the period of the taking which is within the Term, provided that if such taking
shall remain in force at the expiration or earlier termination of this Lease,
Tenant shall perform its obligations under Section 9 with respect to surrender
of the Premises and shall pay to Landlord the portion of any award which is
attributable to any period of time beyond the Term expiration date. For purpose
of this Section 19.4, a temporary taking shall be defined as a taking for a
period of one hundred twenty (120) days or less.
19.5 WAIVER OF TERMINATION RIGHT. This Lease sets forth the terms and
conditions upon which this Lease may terminate in the event of a taking.
Accordingly, the parties waive the provisions of the California Code of Civil
Procedure Section 1265.130 and any successor or similar statutes permitting the
parties to terminate this Lease as a result of a taking.
20. TENANT'S INSURANCE.
20.1 TYPES OF INSURANCE. On or before the earlier of the Commencement Date
or the date Tenant commences or causes to be commenced any work of any type in
or on the Premises pursuant to this Lease, and continuing during the entire
Term, Tenant shall obtain and keep in full force and effect, the following
insurance:
(a) All Risk insurance, including fire and extended coverage, sprinkler
leakage, vandalism and malicious mischief upon property of every
description and kind owned by Tenant and located in the Premises or the
Building, or for which Tenant is legally liable or installed by or on
behalf of Tenant including, without limitation, furniture, equipment
and any other personal property, and any Tenant Changes (but excluding
the initial Tenant Improvements previously existing or installed in the
Premises), in an amount not less then the full replacement cost
thereof.
(b) Commercial general liability insurance coverage, including personal
injury, bodily injury (including wrongful death), broad form property
damage, operations hazard, owner's protective coverage, contractual
liability (including Tenant's indemnification obligations under this
Lease, including Section 17 hereof), liquor liability (if Tenant serves
alcohol on the Premises), products and completed operations liability,
and owned/non-owned auto liability, with a general aggregate of not
less than Two Million Dollars ($2,000,000.00), except that products and
completed operations liability limits may be not less than One Million
Dollars ($1,000,000.00). The general aggregate amount of such
commercial general liability insurance shall be increased every five
(5) years during the Term of this Lease to an amount reasonably
required by Landlord and prudent industry practice.
(c) Worker's compensation and employer's liability insurance, in statutory
amounts and limits.
(d) Loss of income, extra expense and business interruption insurance in
such amounts as will reimburse Tenant for direct or indirect loss of
earnings attributable to all perils commonly insured against by prudent
tenants or attributable to prevention of access to the Premises,
Tenant's parking areas or to the Building as a result of such perils.
Tenant may elect to self-insure this risk.
(e) Any other form or forms of insurance as Tenant or Landlord or the
mortgagees of Landlord may reasonably require from time to time, in
form, amounts and for insurance risks against which a prudent tenant
would protect itself, but only to the extent such risks and amounts are
available in the insurance market at commercially reasonable costs.
20.2 REQUIREMENTS. Each policy required to be obtained by Tenant hereunder
shall: (a) be issued by insurers authorized to do business in the state in which
the Building is located and rated not less than financial class X, and not less
than policyholder rating A in the most recent version of Best's Key Rating Guide
(provided that, in any event, the same insurance company shall provide the
coverages described in Sections 20.1(a) and 20.1(d) above); (b) be in form
reasonably satisfactory from time to time to Landlord; (c) name Tenant as named
insured thereunder and shall name Landlord and, at Landlord's request,
Landlord's mortgagees and ground lessors of which Tenant has been informed in
writing, as additional insureds thereunder, all as their respective interests
may appear; (d) shall not have a deductible amount exceeding Five Thousand
Dollars ($5,000.00); (e) specifically provide that the insurance afforded by
such policy for the benefit of Landlord and Landlord's mortgagees and ground
lessors shall be primary, and any insurance carried by Landlord or Landlord's
mortgagees and ground lessors shall be excess and non-contributing; (f) except
for worker's compensation insurance, contain an endorsement that the insurer
waives its right to subrogation as described in Section 22 below; and (g)
contain an undertaking by the insurer to notify Landlord (and the mortgagees and
ground lessors of Landlord who are named as additional insureds) in writing not
less than thirty (30) days prior to any material change, reduction in coverage,
cancellation or other termination thereof. Tenant agrees to deliver to Landlord,
as soon as practicable after the placing of the required insurance, but in no
event later than ten (10) days after the date Tenant takes possession of all or
any part of the Premises, certificates from the insurance company evidencing the
existence of such insurance and Tenant's compliance with the foregoing
provisions of this Section 20). Tenant shall cause replacement certificates to
be delivered to Landlord not less than thirty (30) days prior to the expiration
of any such policy or policies. If any such initial or replacement certificates
are not furnished within the time(s) specified herein, Tenant shall be deemed to
be in default under this Lease, and Landlord shall have the right, but not the
obligation, to procure such policies and certificates at Tenant's expense.
20.3 EFFECT ON INSURANCE. Tenant shall not do or permit to be done anything
which will (a) violate or invalidate any insurance policy maintained by Landlord
or Tenant hereunder, or (b) increase the costs of any insurance policy
maintained by Landlord pursuant to Section 21 or otherwise with respect to the
Building or the Project. If Tenant's occupancy or conduct of its business in or
on the Premises results in any increase in premiums for any insurance carried by
Landlord with respect to the Building or the Project, Tenant shall pay such
increase as additional rent within ten (10) days after being billed therefor by
Landlord. If any insurance coverage carried by Landlord pursuant to Section 21
or otherwise with respect to the Building or the Project shall be cancelled or
reduced (or cancellation or reduction thereof shall be threatened) by reason of
the use or occupancy of the Premises by Tenant or by anyone permitted by Tenant
to
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be upon the Premises, and if Tenant fails to remedy such condition within five
(5) days after notice thereof, Tenant shall be deemed to be in default under
this Lease, and Landlord shall have all remedies provided in this Lease, at law
or in equity, including, without limitation, the right (but not the obligation)
to enter upon the Premises and attempt to remedy such condition at Tenant's
cost.
21. LANDLORD'S INSURANCE. During the Term, Landlord shall insure the Common
Area improvements, the Building, the Premises and the Tenant Improvements
initially installed in the Premises pursuant to Exhibit "C" (excluding, however,
Tenant's furniture, equipment and other personal property and Tenant Changes) at
their full replacement cost against damage by fire and standard extended
coverage perils and with vandalism and malicious mischief endorsements, rental
loss coverage, at Landlord's option, earthquake damage coverage, and such
additional coverage as Landlord deems appropriate. Landlord shall also carry
commercial general liability insurance (in an amount not less than required of
Tenant under Section 20.1(b) above) and with such reasonable deductibles as
would be carried by a prudent owner of a similar building in the state in which
the Building is located. At Landlord's option, all such insurance may be carried
under any blanket or umbrella policies which Landlord has in force for other
buildings and projects. In addition, at Landlord's option, Landlord may elect to
self-insure all or any part of such required insurance coverage. Landlord may,
but shall not be obligated to, carry any other form or forms of insurance as
Landlord or the mortgagees or ground lessors of Landlord may reasonably
determine is advisable. The cost of insurance obtained by Landlord pursuant to
this Section 21 (including self-insured amounts and deductibles) shall be
included in Operating Expenses, except that any increase in the premium for the
property insurance attributable to the replacement cost of the Tenant
Improvements in excess of the Construction Allowance shall not be included as
Operating Expenses, but shall be paid by Tenant concurrently with Tenant's
monthly installment of its share of Operating Expenses.
22. WAIVERS OF SUBROGATION.
22.1 MUTUAL WAIVER OF PARTIES. Landlord and Tenant hereby waive their rights
against each other with respect to any claims or damages or losses which are
caused by or result from (a) property damage insured against under any property
insurance policy carried by Landlord or Tenant (as the case may be) pursuant to
the provisions of this Lease and enforceable at the time of such damage or loss,
or (b) property damage which would have been covered under any insurance
required to be obtained and maintained by Landlord or Tenant (as the case may
be) under Sections 20 and 21 of this Lease (as applicable) had such insurance
been obtained and maintained as required therein. The foregoing waivers shall be
in addition to, and not a limitation of, any other waivers or releases contained
in this Lease.
22.2 WAIVER OF INSURERS. Each party shall cause each property insurance
policy required to be obtained by it pursuant to Sections 20 and 21 to provide
that the insurer waives all rights of recovery by way of subrogation against
either Landlord or Tenant, as the case may be, in connection with any claims,
losses and damages covered by such policy. If either party fails to maintain
property insurance required hereunder, such insurance shall be deemed to be
self-insured with a deemed full waiver of subrogation as set forth in the
immediately preceding sentence.
23. TENANT'S DEFAULT AND LANDLORD'S REMEDIES.
23.1 TENANT'S DEFAULT. The occurrence of any one or more of the following
events shall constitute a default under this Lease by Tenant:
(a) the abandonment of the Premises by Tenant. "ABANDONMENT" is herein
defined to include, but is not limited to, any absence by Tenant from
the Premises for fourteen (14) business days or longer while in default
of any monetary provision of this Lease;
(b) the failure by Tenant to make any payment of rent or additional rent or
any other payment required to be made by Tenant hereunder, within seven
(7) days of when due;
(c) the failure by Tenant to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in Sections 23.1(a) or (b)
above, where such failure shall continue for a period of thirty (30)
days after written notice thereof from Landlord to Tenant; however,
that any such notice shall be in lieu of, and not in addition to, any
notice required under California Code of Civil Procedure, Section 1161
and provided further that, if the nature of Tenant's default is such
that more than thirty (30) days are reasonably required for its cure,
then Tenant shall not be deemed to be in default if Tenant shall
commence such cure within said thirty (30) day period and thereafter
diligently prosecute such cure to completion; and
(d) (i) the making by Tenant of any general assignment for the benefit of
creditors, (ii) the filing by or against Tenant of a petition to have
Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case
of a petition filed against the Tenant, the same is dismissed within
sixty (60) days), (iii) the appointment of a trustee or receiver to
take possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within sixty (60) days, or (iv) the attachment,
execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease
where such seizure is not discharged within sixty (60) days.
23.2 LANDLORD'S REMEDIES; TERMINATION. In the event of any such default by
Tenant, in addition to any other remedies available to Landlord under this
Lease, at law or in equity, Landlord shall have the immediate option to
terminate this Lease and all rights of Tenant hereunder. In the event that
Landlord shall elect to so terminate this Lease, then Landlord may recover from
Tenant:
(a) the worth at the time of award of any unpaid rent which had been earned
at the time of such termination; plus
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(b) the worth at the time of the 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 Tenant proves could
have been reasonably avoided; plus
(c) 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 Tenant proves could be reasonably avoided;
plus
(d) 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 of things, would be likely
to result therefrom including, but not limited to: unamortized Tenant
Improvement costs; attorneys' fees; unamortized brokers' commissions;
the costs of refurbishment, renovation and repair of the Premises; and
removal (including the repair of any damage caused by such removal) and
storage (or disposal) of Tenant's personal property, equipment,
fixtures, Tenant Changes, Tenant Improvements and any other items which
Tenant is required under this Lease to remove but does not remove.
As used in Sections 23.2(a) and 23.2(b) above, the "worth at the time of award"
is computed by allowing interest at the Interest Rate set forth in Section 1.14
of the Summary. As used in Section 23.2(c) 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%).
23.3 LANDLORD'S REMEDIES; RE-ENTRY RIGHTS. In the event of any such default
by Tenant, in addition to any other remedies available to Landlord under this
Lease, at law or in equity, Landlord shall also have the right, with or without
terminating this Lease, to re-enter the Premises and remove all persons and
property from the Premises; such property may be removed, stored and/or disposed
of pursuant to Section 12.4 of this Lease or any other procedures permitted by
applicable law. No re-entry or taking possession of the Premises by Landlord
pursuant to this Section 23.3, and no acceptance of surrender of the Premises or
other action on Landlord's part, shall be construed as an election to terminate
this Lease unless a written notice of such intention be given to Tenant or
unless the termination thereof be decreed by a court of competent jurisdiction.
23.4 LANDLORD'S REMEDIES; CONTINUATION OF LEASE. In the event of any such
default by Tenant, in addition to any other remedies available to Landlord under
this Lease, at law or in equity, Landlord shall have the right to continue this
Lease in full force and effect, whether or not Tenant shall have abandoned the
Premises. The foregoing remedy shall also be available to Landlord pursuant to
California Civil Code Section 1951.4 and any successor statute thereof in the
event Tenant has abandoned the Premises. In the event Landlord elects to
continue this Lease in full force and effect pursuant to this Section 23.4, then
Landlord shall be entitled to enforce all of its rights and remedies under this
Lease, including the right to recover rent as it becomes due. Landlord's
election not to terminate this Lease pursuant to this Section 23.4 or pursuant
to any other provision of this Lease, at law or in equity, shall not preclude
Landlord from subsequently electing to terminate this Lease or pursuing any of
its other remedies.
23.5 LANDLORD'S RIGHT TO PERFORM. Except as specifically provided otherwise
in this Lease, all covenants and agreements by Tenant under this Lease shall be
performed by Tenant at Tenant's sole cost and expense and without any abatement
or offset of rent. If Tenant shall fail to pay any sum of money (other than
Annual Basic Rent) or perform any other act on its part to be paid or performed
hereunder and such failure shall continue for seven (7) days with respect to
monetary obligations (or thirty (30) days with respect to non-monetary
obligations or, in the event of an emergency, such shorter period of time as may
be reasonable under the circumstances) after Tenant's receipt of written notice
thereof from Landlord, Landlord may, without waiving or releasing Tenant from
any of Tenant's obligations, make such payment or perform such other act on
behalf of Tenant. All sums so paid by Landlord and all necessary incidental
costs incurred by Landlord in performing such other acts shall be payable by
Tenant to Landlord within ten (10) days after demand therefor as additional
rent.
23.6 INTEREST. If any monthly installment of Annual Basic Rent or Common
Area Expenses, or any other amount payable by Tenant hereunder is not received
by Landlord by the date when due, it shall bear interest at the Interest Rate
set forth in Section 1.14 of the Summary from the date due until paid. All
interest, and any late charges imposed pursuant to Section 23.7 below, shall be
considered additional rent due from Tenant to Landlord under the terms of this
Lease.
23.7 LATE CHARGES. Tenant acknowledges that, in addition to interest costs,
the late payments by Tenant to Landlord of any Annual Basic Rent or other sums
due under this Lease will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and impractical
to fix. Such other costs include, without limitation, processing, administrative
and accounting charges and late charges that may be imposed on Landlord by the
terms of any mortgage, deed of trust or related loan documents encumbering the
Premises, the Building or the Project. Accordingly, if any monthly installment
of Annual Basic Rent or Operating Expenses or any other amount payable by Tenant
hereunder is not received by Landlord within ten (10) days of the due date
thereof, Tenant shall pay to Landlord an additional sum of five percent (5%) of
the overdue amount as a late charge, but in no event more than the maximum late
charge allowed by law. The parties agree that such late charge represents a fair
and reasonable estimate of the costs that Landlord will incur by reason of any
late payment as hereinabove referred to by Tenant, and the payment of late
charges and interest are distinct and separate in that the payment of interest
is to compensate Landlord for the use of Landlord's money by Tenant, while the
payment of late charges is to compensate Landlord for Landlord's processing,
administrative and other costs incurred by Landlord as a result of Tenant's
delinquent payments. Acceptance of a late charge or interest shall not
constitute a waiver of Tenant's default with respect to the overdue amount or
prevent Landlord from exercising any of the other rights and remedies available
to Landlord under this Lease or at law or in equity now or hereafter in effect.
23.8 [INTENTIONALLY OMITTED].
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<PAGE> 25
23.9 RIGHTS AND REMEDIES CUMULATIVE. All rights, options and remedies of
Landlord contained in this Section 23 and elsewhere in this Lease shall be
construed and held to be cumulative, and no one of them shall be exclusive of
the other, and Landlord shall have the right to pursue any one or all of such
remedies or any other remedy or relief which may be provided by law or in
equity, whether or not stated in this Lease. Nothing in this Section 23 shall be
deemed to limit or otherwise affect Tenant's indemnification of Landlord
pursuant to any provision of this Lease.
24. LANDLORD'S DEFAULT. Landlord shall not be in default in the performance
of any obligation required to be performed by Landlord under this Lease unless
Landlord has failed to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure to
perform; provided however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for its performance, then Landlord
shall not be deemed in default if it commences such performance within such
thirty (30) day period and thereafter diligently pursues the same to completion.
Upon any such uncured default by Landlord, Tenant may exercise any of its rights
provided in law or at equity; provided, however: (a) Tenant shall have no right
to offset or abate rent in the event of any default by Landlord under this
Lease, except to the extent offset rights are specifically provided to Tenant in
this Lease; (b) Tenant shall have no right to terminate this Lease; and (c)
Tenant's rights and remedies hereunder shall be limited to the extent (i) Tenant
has expressly waived in this Lease any of such rights or remedies and/or (ii)
this Lease otherwise expressly limits Tenant's rights or remedies, including the
limitation on Landlord's liability contained in Section 31 hereof.
25. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee of a mortgage or a beneficiary of a deed
of trust now or hereafter encumbering all or any portion of the Building or the
Project, or any lessor of any ground or master lease now or hereafter affecting
all or any portion of the Building or the Project, this Lease shall be subject
and subordinate at all times to such ground or master leases (and such
extensions and modifications thereof), and to the lien of such mortgages and
deeds of trust (as well as to any advances made thereunder and to all renewals,
replacements, modifications and extensions thereof). Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any or all ground or master leases or the lien of any or all
mortgages or deeds of trust to this Lease. In the event that any ground or
master lease terminates for any reason or any mortgage or deed of trust is
foreclosed or a conveyance in lieu of foreclosure is made for any reason, at the
election of Landlord's successor in interest, Tenant shall attorn to and become
the tenant of such successor, provided such successor assumes in full and in
writing Landlord's obligations under this Lease accruing subsequent to the date
such successor acquires Landlord's interest. Tenant hereby waives its rights
under any current or future law which gives or purports to give Tenant any right
to terminate or otherwise adversely affect this Lease and the obligations of
Tenant hereunder in the event of any such foreclosure proceeding or sale. Tenant
covenants and agrees to execute and deliver to Landlord within ten (10) days
after receipt of written demand by Landlord and in the form reasonably required
by Landlord, any additional documents evidencing the priority or subordination
of this Lease with respect to any such ground or master lease or the lien of any
such mortgage or deed of trust.
Notwithstanding the foregoing, in consideration of, and as a condition precedent
to, the subordination of this Lease to any ground Lease or the lien of any
mortgage or deed of trust not in existence as of the date hereof, Landlord shall
have provided Tenant with a commercially reasonable non-disturbance agreement in
favor of Tenant, in form reasonably acceptable to Tenant, from the ground lessor
or holder of the mortgage or deed of trust, as applicable. Said non-disturbance
agreement shall be in recordable form.
Tenant's obligations under this Lease are subject to Landlord providing to
Tenant within thirty (30) days following the full execution and delivery of this
Lease by the parties, a non-disturbance and attornment agreement, in a
recordable form reasonably acceptable to Tenant, from any ground lessor or any
lender that has a mortgage, deed of trust or other security device encumbering
any portion of the Project as of the date of this Lease (the "NONDISTURBANCE
CONDITION"). Landlord shall exercise good faith efforts to assist in the
satisfaction of the Nondisturbance Condition. If the Nondisturbance Condition is
not satisfied within such thirty (30) day period, Tenant may, within ten (10)
days thereafter, terminate this Lease (as Tenant's sole remedy) by giving
Landlord written notice thereof prior to the date Landlord delivers such
non-disturbance agreement to Tenant. If Tenant does not elect to terminate this
Lease within said ten (10) day period, then Tenant shall be deemed to have
waived the Nondisturbance Condition and this Lease shall no longer be subject to
termination pursuant to this Section 25.
26. ESTOPPEL CERTIFICATE.
26.1 OBLIGATIONS. Within ten (10) business days following a party's written
request, the other party shall execute and deliver to the requesting party an
estoppel certificate, in a form substantially similar to the form of Exhibit "F"
attached hereto (if Landlord is the certifying party, the provisions of Exhibit
"F" will be modified as appropriate), certifying: (a) the Commencement Date of
this Lease; (b) that this Lease is unmodified and in full force and effect (or,
if modified, that this Lease is in full force and effect as modified, and
stating the date and nature of such modifications); (c) the date to which the
rent and other sums payable under this Lease have been paid; (d) that there are
not, to the best of the certifying party's knowledge, any defaults under this
Lease by either Landlord or Tenant, except as specified in such certificate; and
(e) such other matters as are reasonably requested by the requesting party. Any
such estoppel certificate delivered pursuant to this Section 26.1 may be relied
upon by any mortgagee, beneficiary, purchaser or prospective purchaser of any
portion of the Project or Tenant's leasehold estate therein, as well as their
assignees.
26.2 FAILURE TO DELIVER. In addition to constituting a default hereunder, a
party's failure to deliver such estoppel certificate within such time shall be
conclusive upon the certifying party that: (a) this Lease is in full force and
effect without modification, except as may be represented by the requesting
party; (b) there are no uncured defaults in Landlord's or Tenant's performance
(other than the certifying party's failure to deliver the estoppel certificate);
and (c) not more than one (1) month's rental has been paid in advance.
27. INTENTIONALLY OMITTED..
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<PAGE> 26
28. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS.
28.1 MODIFICATIONS. If, in connection with Landlord's obtaining or entering
into any financing or ground lease for any portion of the Building or the
Project, the lender or ground lessor shall request modifications to this Lease,
Tenant shall, within ten (10) days after request therefor, execute an amendment
to this Lease including such modifications, provided such modifications are
reasonable, do not increase the obligations of Tenant hereunder, or adversely
affect the leasehold estate created hereby or Tenant's rights hereunder.
28.2 CURE RIGHTS. In the event of any default on the part of Landlord,
Tenant will give notice by registered or certified mail to any beneficiary of a
deed of trust or mortgagee covering the Premises or ground lessor of Landlord
whose address shall have been furnished to Tenant, and shall offer such
beneficiary, mortgagee or ground lessor the same opportunity to cure the default
as is provided to Landlord hereunder.
29. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that, upon
Tenant performing all of the covenants and provisions on Tenant's part to be
observed and performed under this Lease (including payment of rent hereunder),
Tenant shall and may peaceably and quietly have, hold and enjoy the Premises in
accordance with and subject to the terms and conditions of this Lease as against
all persons lawfully claiming the Premises.
30. TRANSFER OF LANDLORD'S INTEREST. The term "Landlord" as used in this
Lease, so far as covenants or obligations on the part of the Landlord are
concerned, shall be limited to mean and include only the owner or owners, at the
time in question, of the fee title to, or a lessee's interest in a ground lease
of, the Project. In the event of any transfer or conveyance of any such title or
interest (other than a transfer for security purposes only), the transferor
shall be automatically relieved of all covenants and obligations on the part of
Landlord contained in this Lease accruing after the date of such transfer or
conveyance. Landlord and Landlord's transferees and assignees shall have the
absolute right to transfer all or any portion of their respective title and
interest in the Project, the Building, the Premises and/or this Lease without
the consent of Tenant, and such transfer or subsequent transfer shall not be
deemed a violation on Landlord's part of any of the terms and conditions of this
Lease.
31. LIMITATION ON LANDLORD'S LIABILITY. Notwithstanding anything contained
in this Lease to the contrary, the obligations of Landlord under this Lease
(including any actual or alleged breach or default by Landlord) do not
constitute personal obligations of the individual partners, directors, officers
or shareholders of Landlord or Landlord's partners, and Tenant shall not seek
recourse against the individual partners, directors, officers or shareholders of
Landlord or Landlord's partners, or any of their personal assets for
satisfaction of any liability with respect to this Lease. In addition, in
consideration of the benefits accruing hereunder to Tenant and notwithstanding
anything contained in this Lease to the contrary, Tenant hereby covenants and
agrees for itself and all of its successors and assigns that the liability of
Landlord for its obligations under this Lease (including any liability as a
result of any actual or alleged failure, breach or default hereunder by
Landlord), shall be limited solely to, and Tenant's and its successors' and
assigns' sole and exclusive remedy shall be against, Landlord's interest in the
Project, and no other assets of Landlord.
32. MISCELLANEOUS.
32.1 GOVERNING LAW. This Lease shall be governed by, and construed pursuant
to, the laws of the state in which the Project is located.
32.2 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section 30 above,
and except as otherwise provided in this Lease, all of the covenants, conditions
and provisions of this Lease shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective heirs, personal
representatives and permitted successors and assigns; provided, however, no
rights shall inure to the benefit of any Transferee of Tenant unless the
Transfer to such Transferee is made in compliance with the provisions of Section
14, and no options or other rights which are expressly made personal to the
original Tenant hereunder or in any rider attached hereto shall be assignable to
or exercisable by anyone other than the original Tenant under this Lease, except
as otherwise provided herein.
32.3 NO MERGER. The voluntary or other surrender of this Lease by Tenant or
a mutual termination thereof shall not work as a merger and shall, at the option
of Landlord, either (a) terminate all or any existing subleases, or (b) operate
as an assignment to Landlord of Tenant's interest under any or all such
subleases.
32.4 PROFESSIONAL FEES. If either Landlord or Tenant should bring suit
against the other with respect to this Lease, including for unlawful detainer or
any other relief against the other hereunder, then all costs and expenses
incurred by the prevailing party therein (including, without limitation, its
actual appraisers', accountants', attorneys' and other professional fees,
expenses and court costs), shall be paid by the other party.
32.5 WAIVER. The waiver by either party of any breach by the other party of
any term, covenant or condition herein contained shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant and
condition herein contained, nor shall any custom or practice which may become
established between the parties in the administration of the terms hereof be
deemed a waiver of, or in any way affect, the right of any party to insist upon
the performance by the other in strict accordance with said terms. No waiver of
any default of either party hereunder shall be implied from any acceptance by
Landlord or delivery by Tenant (as the case may be) of any rent or other
payments due hereunder or any omission by the non-defaulting party to take any
action on account of such default if such default persists or is repeated, and
no express waiver shall affect defaults other than as specified in said waiver.
The subsequent acceptance of rent hereunder by Landlord shall not be deemed to
be a waiver of any preceding breach by Tenant of any term, covenant or condition
of this Lease other than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such rent.
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<PAGE> 27
32.6 TERMS AND HEADINGS. The words "Landlord" and "Tenant" as used herein
shall include the plural as well as the singular. Words used in any gender
include other genders. The Section headings of this Lease are not a part of this
Lease and shall have no effect upon the construction or interpretation of any
part hereof.
32.7 TIME. Time is of the essence with respect to performance of every
provision of this Lease in which time or performance is a factor. All references
in this Lease to "days" shall mean calendar days unless specifically modified
herein to be "business" days.
32.8 PRIOR AGREEMENTS; AMENDMENTS. This Lease, including the Summary and all
Exhibits and Riders attached hereto contains all of the covenants, provisions,
agreements, conditions and understandings between Landlord and Tenant concerning
the Premises and any other matter covered or mentioned in this Lease, and no
prior agreement or understanding, oral or written, express or implied,
pertaining to the Premises or any such other matter shall be effective for any
purpose. No provision of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective successors
in interest. The parties acknowledge that all prior agreements, representations
and negotiations are deemed superseded by the execution of this Lease to the
extent they are not expressly incorporated herein.
32.9 SEPARABILITY. The invalidity or unenforceability of any provision of
this Lease (except for Tenant's obligation to pay Annual Basic Rent and
Operating Expenses under Sections 3 and 4 hereof) shall in no way affect, impair
or invalidate any other provision hereof, and such other provisions shall remain
valid and in full force and effect to the fullest extent permitted by law.
32.10 RECORDING. Neither Landlord nor Tenant shall record this Lease.
However, either party may record a short form memorandum of this Lease provided
the form and substance thereof is reasonably acceptable to the other party, and
provided that prior to recordation Tenant executes and delivers to Landlord, in
recordable form, a properly acknowledged quitclaim deed or other instrument
extinguishing all of the Tenant's rights and interest in and to the Project, the
Building and the Premises, and designating Landlord as the transferee, which
deed or other instrument shall be held by Landlord and may be recorded by
Landlord once this Lease terminates or expires (but not prior thereto). If such
short form memorandum is recorded in accordance with the foregoing, the party
requesting the recording shall pay for all costs of or related to such
recording, including, but not limited to, recording charges and documentary
transfer taxes.
32.11 EXHIBITS AND RIDERS. All Exhibits and Riders attached to this Lease are
hereby incorporated in this Lease for all purposes as though set forth at length
herein.
32.12 AUCTIONS. Tenant shall have no right to conduct any auction in, on or
about the Premises, the Building or the Project.
32.13 ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of
a lesser amount than the rent payment herein stipulated shall be deemed to be
other than on account of the rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy provided in this Lease. Tenant agrees that each of the foregoing
covenants and agreements shall be applicable to any covenant or agreement either
expressly contained in this Lease or imposed by any statute or at common law.
32.14 FINANCIAL STATEMENTS. Upon ten (10) days prior written request from
Landlord (which Landlord may make at any time during the Term but no more often
than once in any calendar year), Tenant shall deliver to Landlord a current
financial statement of Tenant and any guarantor of this Lease. Such statements
shall be prepared in accordance with generally acceptable accounting principles
and certified as true in all material respects by Tenant (if Tenant is an
individual) or by an authorized officer or general partner of Tenant (if Tenant
is a corporation or partnership, respectively).
32.15 NO PARTNERSHIP. Landlord does not, in any way or for any purpose,
become a partner of Tenant in the conduct of its business, or otherwise, or
joint venturer or a member of a joint enterprise with Tenant by reason of this
Lease. The provisions of this Lease relating to Percentage Rent payable
hereunder, if any, are included solely for the purpose of providing a method
whereby rent is to be measured and ascertained.
32.16 FORCE MAJEURE. In the event that either party hereto shall be delayed
or hindered in or prevented from the performance of any act required hereunder
by reason of strikes, lock-outs, labor troubles, inability to procure materials,
failure of power, governmental moratorium or other governmental action or
inaction (including failure, refusal or delay in issuing permits, approvals
and/or authorizations), injunction or court order, riots, insurrection, war,
fire, earthquake, flood or other natural disaster or other reason of a like
nature not the fault of the party delaying in performing work or doing acts
required under the terms of this Lease (but excluding delays due to financial
inability) (herein collectively, "FORCE MAJEURE DELAYS"), then performance of
such act shall be excused for the period of the delay and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay. The provisions of this Section 32.16 shall not apply to
nor operate to excuse Tenant from the payment of Monthly Basic Rent, Operating
Expenses, percentage rent, if any, additional rent or any other payments
strictly in accordance with the terms of this Lease.
32.17 COUNTERPARTS. This Lease may be executed in one or more counterparts,
each of which shall constitute an original and all of which shall be one and the
same agreement.
32.18 NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees that the
terms of this Lease are confidential and constitute proprietary information of
Landlord. Disclosure of the terms could adversely affect the ability of Landlord
to negotiate other leases and impair Landlord's relationship with other tenants.
Accordingly, Tenant agrees that it, and its
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<PAGE> 28
partners, officers, directors, employees, agents and attorneys, shall not
intentionally and voluntarily disclose the terms and conditions of this Lease to
any newspaper or other publication or any other tenant or apparent prospective
tenant of the Building or other portion of the Project, or real estate agent,
either directly or indirectly, without the prior written consent of Landlord,
provided, however, that Tenant may disclose the terms to prospective subtenants
or assignees under this Lease or as otherwise required by law.
32.19 NON-DISCRIMINATION. Tenant acknowledges and agrees that there shall be
no discrimination against, or segregation of, any person, group of persons, or
entity on the basis of race, color, creed, religion, age, sex, marital status,
national origin, or ancestry in the leasing, subleasing, transferring,
assignment, occupancy, tenure, use, or enjoyment of the Premises, or any portion
thereof.
33. LEASE EXECUTION.
33.1 TENANT'S AUTHORITY. If Tenant executes this Lease as a partnership or
corporation, then Tenant and the persons and/or entities executing this Lease on
behalf of Tenant represent and warrant that: (a) Tenant is a duly authorized and
existing partnership or corporation, as the case may be, and is qualified to do
business in the state in which the Building is located; (b) such persons and/or
entities executing this Lease are duly authorized to execute and deliver this
Lease on Tenant's behalf in accordance with the Tenant's partnership agreement
(if Tenant is a partnership), or a duly adopted resolution of Tenant's board of
directors and the Tenant's by-laws (if Tenant is a corporation); and (c) this
Lease is binding upon Tenant in accordance with its terms.
33.2 JOINT AND SEVERAL LIABILITY. If more than one person or entity executes
this Lease as Tenant: (a) each of them is and shall be jointly and severally
liable for the covenants, conditions, provisions and agreements of this Lease to
be kept, observed and performed by Tenant; and (b) the act or signature of, or
notice from or to, any one or more of them with respect to this Lease shall be
binding upon each and all of the persons and entities executing this Lease as
Tenant with the same force and effect as if each and all of them had so acted or
signed, or given or received such notice.
33.3 LANDLORD'S AUTHORITY. Landlord represents and warrants to Tenant that:
(a) Landlord is a duly authorized and existing limited liability company and is
qualified to do business in California; (b) the persons and entities executing
this Lease are duly authorized to execute and deliver this Lease on Landlord's
behalf in accordance with Landlord's operating agreement; and (c) this Lease is
binding upon Landlord in accordance with its terms.
33.4 NO OPTION. The submission of this Lease for examination or execution by
Tenant does not constitute a reservation of or option for the Premises and this
Lease shall not become effective as a Lease until it has been executed by
Landlord and delivered to Tenant.
34. [INTENTIONALLY OMITTED].
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year
first above written.
"TENANT" AURORA BIOSCIENCES CORPORATION,
a Delaware corporation
By: /s/ TIMOTHY J. RINK
--------------------------------------------------
Name: Timothy J. Rink
---------------------------------------------
Title: President and Chief Executive Officer
--------------------------------------------
By: /s/ DEBORAH J. TOWER
--------------------------------------------------
Name: Deborah J. Tower
---------------------------------------------
Title: Senior Director, Finance and Administration
--------------------------------------------
"LANDLORD" AEW/LBA ACQUISITION CO. II, LLC,
a California limited liability company
By: LBA, Inc., a California corporation,
its agent
By: /s/ PHIL BELLING
--------------------------------------------
Name: Phil Belling
---------------------------------------
Title: Principal
--------------------------------------
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
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<PAGE> 29
PROJECT SITE PLAN
EXHIBIT "A"
<PAGE> 30
FLOOR PLAN
EXHIBIT "B"
<PAGE> 31
EXHIBIT "C"
WORK LETTER AGREEMENT
1. Tenant shall, at Tenant's sole cost and expense (but subject to partial
reimbursement by Landlord pursuant to Paragraph 6 below), improve the Premises
in accordance with plans and specifications approved in writing by Landlord and
in accordance with the requirements of all laws. It is contemplated by the
parties that the improvements to the Premises (the "TENANT IMPROVEMENTS") will
be as described or depicted on Schedule 1 attached hereto (the "PRELIMINARY
PLANS"). Within thirty (30) days following the Effective Date, Tenant shall
provide to Landlord working drawings for the Tenant's Improvements (including
signage) based upon and conforming with the Preliminary Plans and prepared by a
licensed architect or engineer. Within five (5) business days of Landlord's
receipt of such working drawings, Landlord shall notify Tenant of any required
changes to the working drawings. Landlord's failure to so notify Tenant of any
such required changes to the working drawings within said five (5) business day
period shall be deemed to constitute Landlord's approval thereof. Tenant shall
revise the working drawings in accordance with Landlord's comments and deliver
the same to Landlord within ten (10) days of Tenant's receipt of Landlord's
comments. Tenant shall, at its sole cost and expense, be responsible for
obtaining all permits and approvals from governmental authorities necessary for
the construction of such improvements and the operation of Tenant's business.
Landlord will reasonably cooperate with Tenant (at no cost to Landlord) in
Tenant's efforts to obtain all such permits and approvals. Landlord makes no
representation concerning the availability of such permits or approvals.
2. No improvement of any kind to the Premises shall be erected or
maintained unless and until the plans, specifications and proposed location of
such improvement have been approved in by Landlord, which approval shall not be
unreasonably withheld or delayed. Landlord's review and approval of the plans
and specifications for the improvements shall create no liability or
responsibility on the part of Landlord for the completeness of such plans or
their design sufficiency or compliance with Laws.
3. Except for Landlord's reimbursement pursuant to Paragraph 6 below,
Landlord shall not be responsible for any costs associated with Tenant's
construction of any improvements and Tenant acknowledges that Tenant is
accepting the Premises in its "as-is" and "where-is" state, subject to
Landlord's obligations under Sections 11.2 and 11.3 of the Lease.
4. No work of any kind shall be commenced on and no building or other
material shall be delivered until at least five (5) business days after written
notice has been given by Tenant to Landlord of the commencement of such work or
the delivery of such materials or earlier if agreed to by Landlord.
5. The improvements shall be constructed, and all work performed on the
Premises, shall be in accordance with all laws. All work performed on the
Premises shall be done in a good, workmanlike and lien free manner and only with
new materials of good quality and high standards. All work required in the
construction of the improvements shall be performed only by competent
contractors duly licensed as such under the laws of the State of California.
Tenant will competitively bid the construction with contractors approved by
Landlord, which approval shall not be unreasonably withheld. Tenant shall then
enter into a construction contract approved by Landlord (which approval shall
not be unreasonably withheld or delayed) with the selected contractor to
construct the Tenant Improvements and Tenant shall be responsible for all
aspects of coordinating the construction management.
6. Landlord agrees to contribute the sum ("CONSTRUCTION ALLOWANCE") of up
to Three Million Eighty-Two Thousand Four Hundred Seventy-Five Dollars
($3,082,475.00) toward the cost of the Tenant Improvements. Landlord shall only
be obligated to make disbursements from the Construction Allowance to the extent
costs are incurred by Tenant for Tenant Improvement Allowance Items. The
Construction Allowance shall be disbursed by Landlord only for the following
items and costs (collectively, the "TENANT IMPROVEMENT ALLOWANCE ITEMS"):
(a) Payment of the fees of Tenant's architect and engineers in connection
with the preparation of the plans and specifications and final working
drawings;
(b) The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements; and
(c) The cost of construction of those items of the Tenant Improvements; and
(d) HVAC and vandalism repairs as described in Section 11.2 of the Lease.
Provided Tenant is not in material default under the Lease (and no circumstance
exists that would, with notice or lapse of time, or both, constitute a material
default under the Lease), Landlord shall make periodic disbursements (but no
more often than monthly) of the Construction Allowance for Tenant Improvements
and shall authorize the release of monies for the benefit of Tenant in
accordance with the disbursement procedure established by the construction
contract as reasonably approved by Landlord. Landlord may, at its election, make
disbursement checks payable jointly to Tenant and the contractor. As to each
disbursement, the appropriate portion of the Allowance shall be disbursed to
Tenant (less 10% retention) within thirty (30) days following the date Landlord
has received the following ("EVIDENCE OF COMPLETION"):
(d) Tenant has delivered to Landlord a draw request ("DRAW REQUEST") in the
form of AIA Document G702 and G703 (or other form acceptable to
Landlord) specifying that the requisite portion of Tenant Improvements
has been completed, together with invoices, receipts and bills
evidencing the costs and expenses set forth in such Draw Request;
(e) The architect for the Tenant Improvements has certified to Landlord
that the Tenant Improvements have been completed to the level indicated
in the Draw Request in accordance with the approved plans;
<PAGE> 32
(f) Tenant has delivered to Landlord conditional lien releases from the
contractor and all relevant subcontractors and materialmen with respect
to work covered by the current Draw Request and unconditional lien
releases from the contractor and all relevant subcontractors and
materialmen with respect to work covered by prior Draw Requests;
(g) Landlord or Landlord's architect or construction representative has
inspected the Tenant Improvements and determined, in its reasonable
judgment and with all diligence, that the portion of the Tenant
Improvements covered by the Draw Request has been completed in a good
and workmanlike manner, and Landlord is satisfied, in its reasonable
judgment, that the cost to complete the Tenant Improvements does not
exceed the remaining Construction Allowance and other sums available to
Tenant for the payment of such costs;
(h) The Letter of Credit in the amount required by Section 5 of the Lease.
The final disbursement of the balance of the Construction Allowance (i.e., the
retention) shall be disbursed only when Landlord has received Evidence of
Completion as to all of the Tenant Improvements as provided hereinabove and the
following conditions have been satisfied:
(i) Sixty (60) days shall have elapsed following the filing of a
valid notice of completion by Tenant for the Tenant
Improvements;
(ii) A final or temporary certificate of occupancy for the Premises
(if a temporary certificate, the conditions set forth therein
shall be satisfactory to Landlord in its reasonable judgment)
has been issued by the appropriate governmental body or final
sign-off by the subject jurisdiction, if such jurisdiction
does not issue certificates of occupancy;
(iii) Tenant shall have delivered to Landlord one set of
reproducible "As Built" plans for the Tenant Improvements as
prepared by Tenant's architect;
(iv) A complete list of the names, addresses, telephone numbers and
contract amount for all contractors, subcontractors, vendors
and/or suppliers providing materials and/or labor for Tenant's
work;
(v) No claim of lien shall be of record respecting the Tenant
Improvements;
(vi) Tenant shall have delivered to Landlord conditional or
unconditional lien releases, as applicable, in accordance with
California Civil Code Section 3262 as to all of the Tenant
Improvements;
(vii) Copies of all building permits, indicating inspection and
approval of the Premises by the issuer of said permits; and
(viii) Tenant is not in material default under the Lease and Landlord
has not given Tenant notice that a circumstance exists that
would, with notice or lapse of time, or both, constitute a
material default under the Lease.
Landlord, at any time within six (6) months after Tenant takes possession of the
Premises and upon at least five (5) business days prior written notice to
Tenant, may cause an audit to be made of Tenant's books and records relating to
Tenant's expenditures in connection with the construction of the Tenant
Improvements. Tenant shall maintain complete and accurate books and records in
accordance with generally accepted accounting principles of these expenditures
for at least one (1) year. Tenant shall make available to Landlord's auditor
within ten (10) days following Landlord's notice requiring the audit, all books
and records maintained by Tenant pertaining to the construction and completion
of the Tenant Improvements. In addition to all other remedies which Landlord may
have pursuant to the Lease, Landlord may recover from Tenant the reasonable cost
of its audit if the audit discloses that Tenant falsely and knowingly reported
to Landlord expenditures which were not in fact made or falsely and knowingly
reported a material amount of any expenditure or the aggregate expenditures.
7. If substantial completion of the Tenant Improvements is delayed beyond
the date specified in clause (i) of Section 1.7 of the Summary as a direct
result of a Landlord Delay, then such date shall, for purposes of determining
the Commencement Date, be extended by one (1) day for each day of such delay in
the substantial completion of the Tenant Improvements. No Landlord Delay shall
be deemed to have occurred unless and until Tenant has provided written notice
to Landlord specifying the action or inaction that Tenant contends constitutes a
Landlord Delay. If such action or inaction is not cured within two (2) business
days after receipt of such notice, then a Landlord Delay, as set forth in the
notice, shall be deemed to have occurred, commencing as of the date such notice
is received and continuing for the number of days that substantial completion of
the Tenant Improvements was delayed as a direct result of such action or
inaction. For purposes of this Paragraph, a "LANDLORD DELAY" shall mean any
delay in the completion of the Tenant Improvements which is directly due to any
act or omission (but in the case of an omission, only if Landlord had a duty to
act) of Landlord, its agents or contractors, including but not limited to any
delay in the giving of authorizations or approvals of Landlord required under
this Lease, or delay by Landlord in administering any paying when due the
Construction Allowance.
C-2
<PAGE> 33
SCHEDULE 1
DESCRIPTION OR DEPICTION OF TENANT IMPROVEMENTS
<PAGE> 34
SAMPLE FORM OF NOTICE OF LEASE TERM DATES
To: _____________________________ Date:_____________________
_____________________________
Re: Project Lease dated ______________________, 19__ between
___________________________, Landlord, and
___________________________________________, Tenant, concerning Suite
____________ ("Premises") located at
Gentlemen:
In accordance with the above-referenced Lease, we wish to advise and/or confirm
as follows:
1. That the Premises have been accepted by Tenant as being substantially
complete in accordance with the Lease.
2. That Tenant has accepted and is in possession of the Premises, and
acknowledges that under the provisions of the Lease, the Term of the Lease is
for ______________ (___) years, with ______________ (___) options to renew for
______________ (___) years each, and commenced upon the Commencement Date of
________________, 19__ and is currently scheduled to expire on
________________________, subject to earlier termination as provided in the
Lease.
3 That in accordance with the Lease, rental payment has commenced (or
shall commence) on ______________.
4. If the Commencement Date of the Lease is other than the first day of
the month, the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full
amount of the monthly installment as provided for in the Lease.
5. Rent is due and payable in advance on the first day of each and every
month during the Term of the Lease. Your rent checks should be made payable to
_________________________ at _______________________________.
6. The exact number of rentable square feet within the Premises is
____________ square feet. The exact number of usable square feet within the
Premises is ____________ square feet.
7. Tenant's Monthly Operating Expense Charge is $________________________.
AGREED AND ACCEPTED
TENANT: LANDLORD:
___________________________________ ___________________________________
By:________________________________ By:________________________________
By:________________________________
SAMPLE ONLY [NOT FOR EXECUTION]
EXHIBIT "D"
<PAGE> 35
EXHIBIT "E"
RULES AND REGULATIONS
1. No sign, advertisement, name or notice shall be installed or displayed
on any part of the outside or inside of the Building or in any part of the
Common Area without the prior written consent of Landlord. Landlord shall have
the right to remove, at Tenant's expense and without notice, any sign installed
or displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person approved by Landlord, using materials and in a style and
format approved by Landlord.
2. Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises, in Landlord's reasonable discretion. No awnings or other
projection shall be attached to the outside walls of the Building without the
prior written consent of Landlord.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, or loading docks of the Building. Neither Tenant nor any employee,
invitee, agent, licensee or contractor of Tenant shall go upon or be entitled to
use any portion of the roof of the Building. Notwithstanding the foregoing,
Tenant has exclusive use of the loading area.
4. Unless expressly set forth to the contrary in Tenant's Lease, Tenant
shall have no right or entitlement to the display of Tenant's name or logo on
any Project sign, monument sign or pylon sign.
5. All cleaning and janitorial services for the Premises shall be
provided, at Tenant's sole cost and expense, exclusively by or through Tenant or
Tenant's janitorial contractors in accordance with the provisions of Tenant's
Lease. Tenant shall not cause any unnecessary labor by carelessness or
indifference to the good order and cleanliness of the Premises.
6. Landlord will furnish Tenant, free of charge, with two keys to each
door lock in the Premises. Landlord may impose a reasonable charge for any
additional keys. Tenant, upon termination of its tenancy, shall deliver to
Landlord the keys of all doors which have been furnished to, or otherwise
procured by Tenant.
7. Electric wires, telephones, burglar alarms or other similar apparatus
shall not be installed in the Premises except with the approval and under the
direction of Landlord. The location of telephones, call boxes and any other
equipment affixed to the Premises shall be subject to the approval of Landlord.
Any installation of telephones, telegraphs, electric wires or other electric
apparatus made without permission shall be removed by Tenant at Tenant's own
expense.
8. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment, subject to any
express provisions of Tenant's Lease to the contrary. Tenant shall not use or
permit to be used in the Premises any foul or noxious gas or substance, or
permit or allow the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors or vibrations, nor shall Tenant bring into or keep in or about the
Premises any birds or animals.
9. Except for space heaters, Tenant shall not use any method of heating or
air-conditioning other than that supplied by Landlord.
10. Landlord reserves the right from time to time, in Landlord's sole and
absolute discretion, exercisable without prior notice and without liability to
Tenant: (a) to name or change the name of the Building or Project; (b) to change
the address of the Building, and/or (c) to install, replace or change any signs
in, on or about the Common Areas, the Building or Project (except for Tenant's
signs, if any, which are expressly permitted by Tenant's Lease).
11. Tenant shall close and lock all doors of its Premises and entirely shut
off all water faucets or other water apparatus, unless otherwise needed for
Tenant's business and, except with regard to Tenant's computers and other
equipment, if any, which reasonably require electricity on a 24-hour basis, all
electricity, gas or air outlets before Tenant and its employees leave the
Premises. Tenant shall be responsible for any damage or injuries sustained by
other tenants or occupants of the Building or by Landlord for noncompliance with
this rule.
12. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed, and no foreign substances of any kind whatsoever shall be thrown
therein.
13. Tenant shall not make any room-to-room solicitation of business from
other tenants in the Building. Tenant shall not use the Premises for any
business or activity other than that specifically provided for in the Lease.
14. Tenant shall not install any radio or television antenna, loudspeaker
or other device on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
15. Except as expressly permitted in Tenant's Lease, Tenant shall not mark,
drive nails, screw or drill into the partitions, window mullions, woodwork or
plaster, or in any way deface the Premises or any part thereof, except to
install normal wall hangings. Tenant shall repair any damage resulting from
noncompliance under this rule.
16. Canvassing, soliciting and distribution of handbills or any other
written material, and peddling in the Common Area and other portions of the
Project are expressly prohibited, and each tenant shall cooperate to prevent
same.
<PAGE> 36
17. Landlord reserves the right to exclude or expel from the Project any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations of
the Project.
18. Tenant shall store all its trash and garbage within its Premises or in
designated trash containers or enclosures within the Project. Tenant shall not
place in any trash box or receptacle any material which cannot be disposed of in
the ordinary and customary manner of trash and garbage disposal. All garbage and
refuse disposal shall be made in accordance with directions reasonably issued
from time to time by Landlord.
19. The Premises shall not be used for lodging of any kind.
20. Tenant agrees that it shall comply with all fire and security
regulations that may be issued from time to time by Landlord, and Tenant also
shall provide Landlord with the name of a designated responsible principal or
employee to represent Tenant in all matters pertaining to such fire or security
regulations. Tenant shall cooperate fully with Landlord in all matters
concerning fire and other emergency procedures.
21. Tenant assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage. Such responsibility shall include keeping
doors locked and other means of entry to the Premises closed.
22. The requirements of Tenant will be attended to only upon the
appropriate application to Landlord or Landlord's designated representative by
an authorized individual. Employees of Landlord shall not perform any work or do
anything outside of their regular duties unless under special instructions from
Landlord.
23. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant or any
other such tenant, nor prevent Landlord from thereafter enforcing any such Rules
and Regulations against any and all of the tenants in the Building.
24. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Project.
25. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety,
security, care and cleanliness of the Project and for the preservation of good
order therein. Tenant agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which are adopted.
26. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees or guests.
PARKING RULES AND REGULATIONS
In addition to the foregoing rules and regulations and the parking provisions
contained in the Lease to which this Exhibit "E" is attached, the following
rules and regulations shall apply with respect to the use of the Project's
parking areas.
1. Every parker is required to park and lock his/her own vehicle. All
responsibility for damage to or loss of vehicles is assumed by the parker and
Landlord shall not be responsible for any such damage or loss by water, fire,
defective brakes, the act or omissions of others, theft, or for any other cause.
2. Tenant and its employees shall only park in parking areas designated by
Landlord. Tenant shall not leave vehicles in the parking areas overnight nor
park any vehicles in the parking areas other than automobiles, motorcycles,
motor driven or non-motor driven bicycles or four wheeled trucks.
3. No overnight or extended term storage of vehicles shall be permitted,
except that employees may, with notice to Landlord, park their vehicles
overnight for a period not to exceed five (5) business days.
4. Vehicles must be parked entirely within painted stall lines of a single
parking stall.
5. All directional signs and arrows must be observed.
6. The speed limit within all parking areas shall be five (5) miles per
hour.
7. Parking is prohibited: (a) in areas not striped for parking; (b) in
aisles; (c) where "no parking" signs are posted; (d) on ramps; (e) in
cross-hatched areas; and (f) in reserved spaces and in such other areas as may
be designated by Landlord.
8. Washing, waxing, cleaning or servicing of any vehicle not owned by an
employee of Tenant is prohibited.
9. Landlord may refuse to permit any person who violates these rules to
park in the parking areas, and any violation of the rules shall subject the
vehicle to removal, at such vehicle owner's expense.
E-2
<PAGE> 37
EXHIBIT "F"
SAMPLE FORM OF TENANT ESTOPPEL CERTIFICATE
The undersigned ("Tenant") hereby certifies to _______________________________
("Landlord"), and ____________________________, as follows:
1. Attached hereto is a true, correct and complete copy of that certain
Project Lease dated ________________________, 19__ between Landlord and Tenant
(the "Lease"), which demises Premises which are located at
________________________________________________. The Lease is now in full force
and effect and has not been amended, modified or supplemented, except as set
forth in Section 6 below.
2. The term of the Lease commenced on ________________, 19__.
3. The term of the Lease is currently scheduled to expire on
________________, 19__.
4. Tenant has no option to renew or extend the Term of the Lease except:
________________________________.
5. Tenant has no preferential right to purchase the Premises or any
portion of the Building or Project upon which the Premises are located, and
Tenant has no rights or options to expand into other space in the Building
except: ________________________________________________________________________
6. The Lease has: (Initial One)
( ) not been amended, modified, supplemented, extended, renewed
or assigned.
( ) been amended, modified, supplemented, extended, renewed or
assigned by the following described agreements, copies
of which are attached hereto:_______________________________.
7. Tenant has accepted and is now in possession of the Premises and has
not sublet, assigned or encumbered the Lease, the Premises or any portion
thereof except as follows: ________________________________.
8. The current Monthly Basic Rent is $______________; and current monthly
parking charges are $____________.
9. Tenant's Monthly Operating Expense Charge currently payable by Tenant
is $____________ per month.
10. The amount of security deposit (if any) is $________________. No other
security deposits have been made.
11. All rental payments payable by Tenant have been paid in full as of the
date hereof. No rent under the Lease has been paid for more than thirty (30)
days in advance of its due date.
12. All work required to be performed by Landlord under the Lease has been
completed and has been accepted by Tenant, and all tenant improvement allowances
have been paid in full.
13. To the best of Tenant's knowledge, as of the date hereof, there are no
defaults on the part of Landlord or Tenant under the Lease.
14. Tenant has no defense as to its obligations under the Lease and claims
no set-off or counterclaim against Landlord.
15. Tenant has no right to any concession (rental or otherwise) or similar
compensation in connection with renting the space it occupies, except as
expressly provided in the Lease.
16. All insurance required of Tenant under the Lease has been provided by
Tenant and all premiums have been paid.
17. There has not been filed by or against Tenant a petition in bankruptcy,
voluntary or otherwise, any assignment for the benefit of creditors, any
petition seeking reorganization or arrangement under the bankruptcy laws of the
United States or any state thereof, or any other action brought pursuant to such
bankruptcy laws with respect to Tenant, except as follows _____________________.
18. Tenant pays rent due Landlord under the Lease to Landlord and does not
have any knowledge of any other person who has any right to such rents by
collateral assignment or otherwise.
<PAGE> 38
The foregoing certification is made with the knowledge that
________________________ is about to [FUND A LOAN TO LANDLORD OR PURCHASE THE
BUILDING FROM LANDLORD], and that ________________________ is relying upon the
representations herein made in [FUNDING SUCH LOAN OR PURCHASING THE BUILDING].
Dated: ________________, 19__.
"TENANT"
___________________________________
By:________________________________
By:________________________________
SAMPLE ONLY (NOT FOR EXECUTION)
F-2
<PAGE> 39
EXHIBIT "G"
TENANT ENVIRONMENTAL QUESTIONNAIRE
The purpose of this form is to obtain information regarding the use or proposed
use of hazardous materials at the premises. Prospective tenants should answer
the questions in light of their proposed operations at the premises. Existing
tenants should answer the questions as they relate to ongoing operations at the
premises and should update any information previously submitted. If additional
space is needed to answer the questions, you may attach separate sheets of paper
to this form.
Your cooperation in this matter is appreciated.
1. GENERAL INFORMATION
Name of Responding Company:___________________________________________.
<TABLE>
<CAPTION>
Check the Applicable Status: Prospective Tenant _____ Existing Tenant _____
<S> <C> <C>
</TABLE>
Mailing Address:_______________________________________________________
Contact Person and Title:______________________________________________
Telephone Number: (_____) ________________________
Address of Leased Premises:____________________________________________
Length of Lease Term:__________________________________________________
Describe the proposed operations to take place on the premises,
including principal products manufactured or services to be conducted.
Existing tenants should describe any proposed changes to ongoing
operations.
________________________________________________________________________________
________________________________________________________________________________
2. STORAGE OF HAZARDOUS MATERIALS
2.1 Will any hazardous materials be used or stored on-site?
Wastes Yes _____ No _____
Chemical Products Yes _____ No _____
2.2 Attach a list of any hazardous materials to be used or stored,
the quantities that will be on-site at any given time, and the
location and method of storage (e.g., 55-gallon drums on
concrete pad).
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel or
other hazardous substances in tanks or sumps proposed or
currently conducted at the premises?
Yes ______ No _____
If yes, describe the materials to be stored, and the type,
size and construction of the sump or tank. Attach copies of
any permits obtained for the storage of such substances.
______________________________________________________________
______________________________________________________________
3.2 Have any of the tanks or sumps been inspected or tested for
leakage?
Yes ______ No _____
If so, attach the results.
3.3 Have any spills or leaks occurred from such tanks or sumps?
Yes ______ No _____
If so, describe.
______________________________________________________________
______________________________________________________________
3.4 Were any regulatory agencies notified of the spill or leak?
Yes ______ No _____
If so, attach copies of any spill reports filed, any clearance
letters or other correspondence from regulatory agencies
relating to the spill or leak.
3.5 Have any underground storage tanks or sumps been taken out of
service or removed?
Yes ______ No _____
If yes, attach copies of any closure permits and clearance
obtained from regulatory agencies relating to closure and
removal of such tanks.
<PAGE> 40
4. SPILLS
4.1 During the past year, have any spills occurred at the
premises?
Yes ______ No _____
If yes, please describe the location of the spill.
______________________________________________________________
______________________________________________________________
4.2 Were any agencies notified in connection with such spills?
Yes ______ No _____
If yes, attach copies of any spill reports or other
correspondence with regulatory agencies.
4.3 Were any clean-up actions undertaken in connection with the
spills?
Yes ______ No _____
Attach copies of any clearance letters obtained from any
regulatory agencies involved and the results of any final soil
or groundwater sampling done upon completion of the clean-up
work.
5. WASTE MANAGEMENT
5.1 Has your company been issued an EPA Hazardous Waste Generator
I.D. Number?
Yes ______ No _____
5.2 Has your company filed a biennial report as a hazardous waste
generator?
Yes ______ No _____
If so, attach a copy of the most recent report filed.
5.3 Attach a list of the hazardous wastes, if any, generated or to
be generated at the premises, its hazard class and the
quantity generated on a monthly basis.
5.4 Describe the method(s) of disposal for each waste. Indicate
where and how often disposal will take place.
_____ On-site treatment or recovery _____________________
_____ Discharged to sewer _______________________________
_____ Transported and disposed of off-site ______________
_____ Incinerator _______________________________________
5.5 Indicate the name of the person(s) responsible for maintaining
copies of hazardous waste manifests completed for off-site
shipments of hazardous waste.
5.6 Is any treatment of processing of hazardous wastes currently
conducted or proposed to be conducted at the premises:
Yes ______ No _____
If yes, please describe any existing or proposed treatment
methods. _____________________________________________________
______________________________________________________________
5.7 Attach copies of any hazardous waste permits or licenses
issued to your company with respect to its operations at the
premises.
6. WASTEWATER TREATMENT/DISCHARGE
6.1 Do you discharge wastewater to:
_____ storm drain? _____ sewer?
_____ surface water? _____ no industrial discharge
6.2 Is your wastewater treated before discharge?
Yes ______ No _____
If yes, describe the type of treatment conducted.
______________________________________________________________
______________________________________________________________
6.3 Attach copies of any wastewater discharge permits issued to
your company with respect to its operations at the premises.
G-2
<PAGE> 41
7. AIR DISCHARGES
7.1 Do you have any filtration systems or stacks that discharge
into the air?
Yes ______ No _____
7.2 Do you operate any of the following types of equipment or any
other equipment requiring an air emissions permit?
_____ Spray booth
_____ Dip tank
_____ Drying oven
_____ Incinerator
_____ Other (please describe) ___________________________
_____ No equipment requiring air permits
7.3 Are air emissions from your operations monitored?
Yes ______ No _____
If so, indicate the frequency of monitoring and a description
of the monitoring results.
______________________________________________________________
7.4 Attach copies of any air emissions permits pertaining to your
operations at the premises.
8. HAZARDOUS MATERIALS DISCLOSURES
8.1 Does your company handle hazardous materials in a quantity
equal to or exceeding an aggregate of 500 pounds, 55 gallons,
or 200 cubic feet per month?
Yes ______ No _____
8.2 Has your company prepared a hazardous materials management
plan pursuant to any applicable requirements of a local fire
department or governmental agency?
Yes ______ No _____
If so, attach a copy of the business plan.
8.3 Has your company adopted any voluntary environmental, health
or safety program?
Yes _____ No _____
If so, attach a copy of the program. No formal program. We
recycle paper, aluminum cans, and scrap aluminum.
9. ENFORCEMENT ACTIONS, COMPLAINTS
9.1 Has your company ever been subject to any agency enforcement
actions, administrative orders, or consent decrees?
Yes ______ No _____
If so, describe the actions and any continuing compliance
obligations imposed as a result of these actions.
______________________________________________________________
9.2 Has your company ever received requests for information,
notice or demand letters, or any other inquiries regarding its
operations?
Yes ______ No _____
9.3 Have there ever been, or are there now pending, any lawsuits
against the company regarding any environmental or health and
safety concerns?
Yes ______ No _____
9.4 Has an environmental audit ever been conducted at your
company's current facility?
Yes ______ No _____
If so, identify who conducted the audit and when it was
conducted.
______________________________________________________________
Company
By:___________________________
Title:________________________
Date:_________________________
G-3
<PAGE> 1
EXHIBIT 11.1
AURORA BIOSCIENCES CORPORATION
STATEMENT RE COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Period from Three Months Ended
May 8, 1995 March 31,
(inception) to Year Ended --------------------------
December 31, 1995 December 31, 1996 1996 1997
----------------- ----------------- --------------------------
<S> <C> <C> <C> <C>
Net loss ......................................... $(411,727) $(2,933,480) $ (499,211) $ (841,628)
Computation of common and common equivalent
shares outstanding:
Weighted average common shares outstanding ..... 0 1,710,513 984,560 2,856,663
Convertible preferred stock assuming
conversion from date of issuance .............. 0 6,669,404 2,093,328 9,915,975
---------- ----------- ---------- -----------
8,379,917 3,077,888 12,772,638
Shares related to SAB 83 (1):
Common stock ................................... 988,456 988,456 988,456 73,557
Convertible preferred stock (3)................. 1,218,581 1,218,581 1,218,581 --
Warrants (2) ................................... 45,289 45,289 45,289 45,289
Common stock options granted (2) ............... 507,159 507,159 507,159 507,159
---------- ----------- ---------- -----------
2,759,485 2,759,485 2,759,485 626,005
---------- ----------- ---------- -----------
Shares used in computing pro forma net loss per
share ........................................... 2,759,485 11,139,402 5,837,373 13,398,643
========== =========== ========== ===========
Pro forma net loss per share ..................... $ (.15) $ (.26) $ (.09) $ (.06)
========== =========== ========== ===========
</TABLE>
- ------------
(1) Using the treasury stock method.
(2) All warrants and common stock options were granted after March 14, 1996 and
are included in this calculation as SAB 83 shares.
(3) Using the treasury stock method, 1,724,694 shares of Series B, C and D
Preferred Stock are included in this calculation at 1,218,581 common shares.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated April 7, 1997
(except Note 11, as to which the date is April 25, 1997), in Amendment No. 1 to
the Registration Statement (Form S-1 No. 333-23407) and related Prospectus of
Aurora Biosciences Corporation for the registration of 3,450,000 shares of its
common stock.
ERNST & YOUNG LLP
San Diego, California
April 25, 1997
